Monday, August 10, 2020

Can we now have a less brain-dead conversation about debt and deficit? | Katharine Murphy | Australia news


Indulge me for a moment while I get this off my chest. What passes for a conversation about debt and deficit in this country is cartoonish. It has been ludicrous for a long time, but perhaps we hit peak ludicrous when the Coalition chose to weaponise Labor’s Keynesian response to the global financial crisis for partisan advantage.

In the run up to the 2013 election, Tony Abbott pursued two utterly self-interested political strategies. The first was “axe the carbon tax” (which I note for possibly the 800th time was never a “tax” but a carbon price with a fixed period); and the second howler was the “budget emergency” and “debt and deficit disaster”. Abbott’s apocalyptic pitch was bunkum, but it worked, and Labor conspired with the cacophonous onslaught of hyper-partisan hyperbole by being idiots themselves, choosing to prioritise the civil war between Kevin Rudd and Julia Gillard over being in government.

With that history noted, let’s turn now to the week. The Reserve Bank governor, Philip Lowe, is a diplomat, unlike me, and his words have force: they move financial markets. So when the governor made a passing observation about the narrow tone of the Australian debt and deficit debate, it was very low key. Lowe was trying to nudge the debate away from the conventional Australian political frame, where debt has become synonymous with profligacy, or managerial incompetence.

In a speech, Lowe said it was the role of a government during a crisis to borrow to “smooth out the hit to our current income”. This might seem “quite a change” for a country used to low deficits and low levels of public debt. “But it is a change that is entirely manageable and affordable and it’s the right thing to do in the national interest.” To be clear: the governor of Australia’s central bank did not tell people to screen out any fool in the public arena who is currently parroting the same, tired “public debt is, by definition, terrible” script someone handed them in the 1980s – but I took it as read.

I’m not doing a great job this weekend of masking my exasperation, so let’s get to the nub of it. Political journalists are currently in a strange position. Because the current government confected a massive stink about budget emergencies to help propel them to power, because they ruthlessly smashed up their opponents for running deficits, because they were the political party that told voters before the last election the budget was “back in black” – we judge them on their record.

We are obliged to measure them against their own avowed standards. That’s an important part of the job.

But fulfilling this part of the job does create the circumstances where the wrong questions get asked. This was particularly obvious this week when the majority of questions at a press conference after the release of new Treasury forecasts – the questions to Josh Frydenberg and Mathias Cormann – were different iterations of “when are you going to pay back this [terrible, historic, gobsmacking] debt [given you’ve spent a decade equating the presence of debt with the absence of managerial competence]”.

This is one of the things I find most uncomfortable about my job: being dragged, relentlessly, towards the obtuse, the binary, often for all the right reasons. These sorts of questions are completely ludicrous in the current circumstances. Lowe’s situation report is right: governments can borrow, they should borrow productively to avoid creating deep scars in the country. In case this rationale wasn’t compelling enough, Lowe also noted Australia has low levels of debt compared to the countries we routinely benchmark ourselves against, and borrowing costs are currently the lowest they’ve been since federation.

But here we are, pushing back against sense, delivering a public show of being fixated with the wrong questions, not because we don’t understand the underlying reality, but because the Coalition refused to accept the bleeding obvious when Labor applied that same utterly reasonable approach during the global financial crisis – an approach that kept Australia out of recession.

That’s why journalists keep asking government people in different ways why they are Keynesians now, and how long they intend to persist with their shape shift: because these same people castigated their opponents for pump priming during the last crisis, either because these same people believed 10 years ago that controlling debt was more important than trying to contain job losses, or to pump up their own tyres with voters on economic management.

Perhaps some journalists keep asking the “how long do you intend to persist with this fiscal vandalism” questions because either they, or perhaps their bosses, genuinely believe that crap. Perhaps some are mired in a redundant analytical frame. But I think most of the struggle this week has involved the fourth estate trying to align black with white – which is what I spend a lot of time doing while suppressing a creeping anxiety about the pointlessness of the endeavour.

In any case, let’s spare all our sanity by considering how we might get past this. To reset, to back away from the stupid, we need a more informed conversation about debt and deficit, with reference to the current conditions.

Now to be clear: balancing out the political opportunists and genuine debt hawks, there are also folks around who believe that governments running up debt doesn’t matter. I’m not of that view. Long-term fiscal sustainability for me isn’t an ideological shibboleth, it’s a matter of sound practice.

If governments have means and levers to pull, they can make life better for people. They can help make societies better, and fairer. If there are resources, and if there is will, governments can do good. That’s been the one upside of 2020: watching our governments in Australia, flawed and human as they are, try really hard not to fail us.

So the more informed conversation on debt I’m hoping for isn’t let ’er rip. The conversation I’m after is one predicated on truth rather than being buffeted around by the exigencies of partisan politics.

So what are the prospects for truth winning out?

Josh Frydenberg is currently trying to execute a pivot of sorts. On Friday he told the National Press Club his was not a government of “austerity”. His prescription for managing all the red ink and tracking the budget back to balance wasn’t draconian expenditure cuts, or tax increases, or fiscal rules (which have been jettisoned). It was boosting economic growth. In his own telling, the treasurer was a crisis Keynesian, and a recovery Reaganite.

I’m all for the return of economic growth. That sounds positively cheery in the dead of winter, with Covid-19 still on the march, with unemployment creeping relentlessly towards 9%. But we do need to be hard-headed about this. Robust growth, pre-Covid, has been an elusive commodity in post-GFC economies, including Australia.

Talking about growth is very different to unleashing it. Growth requires confidence, and right now confidence is in very short supply. The Coalition can dust off the deregulation agenda, it can use the more productive relationships with the states that have been forged through Covid to try to deal with a few roadblocks, but there are no magic bullets.

“We can grow our way out of trouble” also isn’t a new concept. Every government who has not wanted to cut spending or increase taxes has mounted a version of the “growth will get us out of trouble” narrative, and some of these stories are more plausible than others.

The change of language, this post-austerity Coalition, could be a precursor to a less shrill, less brain-dead conversation. But the test, at the end of the day, will be the same one that always applies: can the government actually achieve the objective?

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