Bouquets and brickbats for Labor reign
The comments formed part of BusinessDay's twice-yearly survey of economists from the financial markets, academia and industry.
A majority of the panel of economists believe Labor did a good job protecting Australia from the crisis, with three out of four respondents ranking it as one of the government's top achievements.
But when judged against other economic criteria, the experts were far less kind towards the Rudd and Gillard governments' economic management since 2007, especially Labor's infamous budget surplus promise. And when it came to a potential Abbott government, long-term problems in the budget were also a top priority.
While much of the world is still feeling the effects of the crisis, BT Financial chief economist Chris Caton said Labor had done a "a lot better than generally thought" during its years in office. "It went hard and early in trying to combat the GFC, and Australia had a very mild episode as a result," he said. "It's true that some of the money was inefficiently spent, but that's the nature of government spending."
Of the 17 economists who answered BusinessDay's survey question on Labor's economic record, 13 identified the stimulus response as something the government did right, despite concerns about overspending. Macquarie's Richard Gibbs described the response - which included spending worth $42 billion - as "extremely effective" in helping Australia avoid a damaging recession.
A significant number also said they supported introducing a carbon price and a mining tax - though they said the final form of the latter was far from ideal.
On the negative side, former treasurer Wayne Swan's pledge to deliver a surplus "come hell or high water" was slammed as ultimately damaging to confidence.
Neville Norman, an associate professor of economics at the University of Melbourne, said Labor's "compulsive obsession to strive for a budget surplus" failed to consider variables such as company tax revenue, which ended up being much weaker than expected. And Mr Swan stuck to the promise despite loud warnings it could not be met.
Saul Eslake, from Bank of America Merrill Lynch, also criticised Mr Swan's "extraordinary" determination to land a surplus this year. But he also said it was too simplistic to only judge Mr Swan by looking at the top-line "numbers" without considering the difficult context he faced.
"Wayne Swan had to deal with far more adverse circumstances than Peter Costello, or indeed than any treasurer since 'Red Ted' Theodore [federal treasurer 1929-30]," Mr Eslake said.
The panel was also asked for their views on what Opposition Leader Tony Abbott should do if he won this year's election. A top priority was to put the budget on a more sustainable footing.
Australian Chamber of Commerce and Industry chief economist Greg Evans said the budget position would be the top priority facing any new government.
"Structurally, the budget is mired in deficit, and the potential for a further deterioration in the terms of trade would deepen the extent of the revenue shortfall," Mr Evans said.
Mr Abbott's promise to conduct a review of the tax system won wide support, with several suggesting he consider broadening or raising the GST.
Frequently Asked Questions about this Article…
Economists gave Labor a mixed review: they praised the government's response to the global financial crisis (GFC) but were critical of its overall budget management and the high‑profile surplus pledge. These views come from BusinessDay's twice‑yearly survey of market, academic and industry economists.
Yes — a majority of economists said the GFC stimulus worked. Of 17 economists who answered the survey question, 13 identified the stimulus response as something the government did right. Commentators noted Australia avoided a damaging recession after about $42 billion of stimulus spending.
While many economists said the stimulus was effective in preventing a deep recession, some acknowledged parts of the spending were inefficient. BT Financial's Chris Caton said the government 'went hard and early,' producing a mild downturn, but also noted that some money was inefficiently spent — a common feature of large-scale government programs.
Economists criticised the pledge as ultimately damaging to confidence because it ignored changing economic variables — notably weaker company tax revenue. Critics like Neville Norman and Saul Eslake said the obsession with achieving a surplus failed to account for the very difficult circumstances Swan faced.
A significant number of economists supported introducing a carbon price and a mining tax, though many said the final design — particularly of the mining tax — was far from ideal. The panel indicated support in principle for pricing carbon and taxing mining profits.
Economists recommended that a new Abbott government should prioritise putting the budget on a more sustainable footing. They also broadly supported Abbott's plan to review the tax system, with several suggesting consideration of broadening or raising the GST as part of tax reform.
Analysts said the budget was structurally mired in deficit and vulnerable to revenue shocks. Greg Evans of the Australian Chamber of Commerce and Industry warned that any further deterioration in the terms of trade would deepen the revenue shortfall, reinforcing the need for sustainable fiscal settings.
The survey quoted figures such as BT Financial chief economist Chris Caton, Macquarie's Richard Gibbs, Bank of America Merrill Lynch's Saul Eslake, University of Melbourne's Neville Norman and Greg Evans from the Australian Chamber of Commerce and Industry. Their views ranged from calling the stimulus 'extremely effective' to warning against an obsessive focus on delivering a budget surplus without accounting for difficult economic conditions.
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