Brickbats and praise for Labor

Wayne Swan had to deal with far more adverse circumstances than Peter Costello. Saul Eslake, Bank of America Merrill Lynch

Australia's leading economists have given federal Labor a mixed review for economic management since 2007, praising its response to the global financial crisis but criticising its handling of the budget.

The comments formed part of BusinessDay's twice-yearly survey of economists from the financial markets, academia and industry peak bodies.

A large majority of BusinessDay's panel believe Labor did a good job protecting Australia from the GFC, with three out of four respondents ranking it as one of its top achievements.

But when judged against other economic criteria, the experts were far less kind towards the Rudd and Gillard government's economic management, 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.

With much of the world still feeling the effects of the GFC, BT Financial's chief economist Chris Caton said Labor had done a "a lot better than generally thought" during its six years in office.

"It went hard and early in trying to combat the GFC, and Australia had a very mild episode as a result," Dr Caton said.

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 some $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 unnecessary and 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 key variables such as company tax revenue, which ended up being much weaker than expected. And Mr Swan stuck to the promise despite warnings it couldn't be met.

"The 'admission' that they couldn't do it took until late December 2012, by which time the business and general community lost all confidence that the Gillard-Swan team had any real understanding of fundamental budget mechanics," he said.

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 judge Mr Swan only 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 what Tony Abbott should do if he wins this year's election, with a top priority being to put the budget on a more sustainable footing.

The chief economist at the Australian Chamber of Commerce and Industry, Greg Evans, said the budget 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.

NAB chief economist Alan Oster said there was scope for broadening the GST to help out cash-strapped states.

Despite Mr Abbott making a "blood pledge" to roll back the carbon price, several market economists including Mr Eslake, Dr Caton and Citi's Paul Brennan, called for a stronger emphasis on policies to boost productivity rather than undoing Labor decisions.

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