Australia, Canada, capital gains, China, Coalition, debt, deficit, Don Argus, Donald Trump, economy, expenditure, exports, finances, GDP, Germany, GFC, global financial crisis, government, housing prices, Joseph Stiglitz, labor, mining, negative gearing, recession, revenue, stimulus packages, tax, tax concessions, tax cuts, taxes, UK, unemployment, US
An article appeared in The Australian on 12 December 2016 in which former National Australia Bank CEO Don Argus accused the Labor government of 2007 to 2013 of spending up big and putting a “dead weight” on the country’s finances. He complained about the government’s “cavalier approach to spending” in 2008. Not a scrap of data was provided to back up the claims. See http://www.theaustralian.com.au/business/don-argus-says-ruddgillard-spending-weighs-on-economy/news-story/a89fdbb6f0a4c3b6d94bcd192eaafc05.
For a start, the stimulus packages were not announced until February 2009. They totalled about $52 billion and the reason for them was to keep the economy out of recession in the face of the global financial crisis. Australia’s GDP growth fell to about 1% and without the stimulus packages, the economy would have contracted by around 2.5%. This would have resulted in many more businesses going broke or being in trouble and a considerably higher unemployment rate.
Expenditure as a proportion of GDP in 2007-08 (Labor was in office for the last seven months) was 23.1 %, the lowest it had been since 1989-90. It rose to 25.1% in 2008-09 and 26.0% in 2009-10 with the stimulus packages. It then fell to 24.5% in 2010-11, 24.9% in 2011-12 and 24.1% in 2012-13. Since mid September, the right wing Coalition government has been in office and expenditure rose to 25.6% of GDP in both 2013-14 and 2014-15 and 25.8% in both 2015-16 and 2016-17 (projected).
When the GFC hit, revenue went through the floor. It had been 25-26% of GDP in the years before the GFC. It then fell to 23.3% in 2008-09, 22.0% in 2009-10, 21.4% in 2010-11, 22.1% in 2011-12 and 23.0% in 2012-13. This is the main reason for the deficits and debt in that period rather than the extra expenditure to keep us out of recession. It is sometimes thought that mining and exports to China saved us from recession (rather than the stimulus packages). But gross value added by mining grew by about $3 billion in 2008-09 and exports to China by around $12 billion, which together was about 1% of GDP.
Australia came out of the GFC with the third lowest government debt to GDP ratio of the 34 OECD countries. Many commentators have applauded the Labor government’s efforts during this time. Nobel prize winning professor of economics Joseph Stiglitz of New York said: “You were lucky to have, probably, the best designed stimulus package of any of the countries, advanced industrial countries, both in size and in design, timing and how it was spent – and I think it served Australia well,” http://www.abc.net.au/news/2010-08-06/stimulus-served-australia-well-despite-waste/935002 The article also stated that Stiglitz felt that such programs are “preferable to the waste of human and capital resources that would have resulted if there was no stimulus.” The packages weren’t perfect at such short notice but they did the trick.
Expenditure has risen under the Coalition government. Also, it doesn’t seem to think there is a revenue problem, which we’ve had since the GFC. It was 23.5% of GDP in 2015-16, still a couple of per cent below pre-GFC. The Coalition wants to give corporations a $50 billion tax cut, which Argus and others support. But consumer demand for goods and services isn’t there, which means that tax cuts will be unlikely to go to business investment. They will more likely go to shareholders, which is likely to result in more money spent on overseas holidays and more residential investment properties. Any tax cuts will also make the deficits even larger. The UK and Canada have reduced corporate tax rates half a dozen times over the last eight years. The US and Germany hasn’t, but if anything their economies have done better than the UK and Canada.
Overly generous tax concessions (negative gearing and capital gains exemption) to investors in residential property have been another major problem in Australia and an important reason the economy is underperforming and the deficits are larger than they should be. Our housing prices are among the highest in the world and first home buyers have been priced out of the market by speculative investors in property pushing up demand, prices and rents.
Don Argus also said we are “becoming one of the highest-taxing economies in the OECD”. This is simply not true either. We are one of the lowest if company and personal taxes, GST type taxes and others are taken into account. Our GST rate is especially low. He mentions Donald Trump proposing to reduce the corporate tax rate to 15%. This will have a devastating effect on the budget. Deficits and debt will grow. Services such as health, education, law and order, and roads will decline, and the economy will struggle even more than now.
If Argus and a few other commentators on the right had a look at the facts and figures, they might not come up with such outlandish and incorrect statements.