While there is a gulf a kilometre wide between the Coalition and Labor on so many issues in the election campaign, there are a surprisingly large number of areas in economic policy where there is bipartisan agreement on how to manage the economy.
Rather than a chalk and cheese difference on key areas of economic management, it is chalk and chalk – or cheese and cheese, if you would prefer.
The final leaders' debate last night at Rooty Hill, and the Press Club clash between Treasurer Chris Bowen and his Shadow, Joe Hockey, contained little that was new to the main themes both parties will be running with until polling day (Hockey, Bowen trade barbs at Press Club, August 28).
As illustrated earlier this week (Tony piggybacks on Labor’s piggy bank, August 26), the Coalition has now embraced Labor’s timetable for the return to budget surplus and will do no better or worse than the current estimates on the size of those surpluses over the medium term. In the event of a Coalition victory, the next budget surplus will be in about three years and then the ‘peak-surplus’ will be a couple of years after that at around 1 per cent of GDP.
This means, of course, that there is no difference between the main parties on the path for government debt, be it gross or net. Both Labor and the Coalition are now suggesting that net government debt – the more important concept for judging the status of government finances – will peak at around 13 per cent of GDP next year and then will ease back to zero in about a decade. Given the Coalition’s budget strategy, if elected it will preside over a gross debt level of $370 billion in 2015-16 and 2016-17.
Another area where there has been zero discussion or political debate because both sides agree is independence for the Reserve Bank of Australia and its target for inflation of 2 to 3 per cent over the course of the economic cycle.
Thankfully, both sides of politics have had this approach to the Reserve Bank for around 20 years, which started in 1993 when then the central bank’s governor Bernie Fraser formally articulated the inflation target for the first time. This target was publicly endorsed by then Treasurer Ralph Willis in 1994, more formally adopted by Peter Costello in 1996 and since then the target has been in place, unchallenged. No one in the current campaign is suggesting the interest rate setting functions revert to the politicians or that the inflation target should be moved in either direction.
There was, it should be noted, a bit of interest rate argy-bargy in the period around 2003 to 2006 when Ian Macfarlane was Reserve Bank Governor. Macfarlane held interest rates too low for too long amid the campaigning of the Howard government that “interest rates will always be lower under a Coalition government”. As a result of inappropriately easy monetary conditions, inflation exploded to an unthinkable 5 per cent and Macfarlane’s successor, Glenn Stevens, was left to clean up the mess by hiking official interest rates to 7.25 per cent in early 2008.
There is also agreement by both sides of politics (at least it seems so) that the floating Australian dollar is the best way to for the exchange rate to function. This is despite some mutterings from Shadow Finance Minister Andrew Robb and a few National Party members a year or two ago when they flagged the idea of some form of exchange rate policy change when the Australian dollar was persistently around 105 US cents. This talk was clearly political posturing – we can hope – because the issue of fixing or regulating the Australian dollar has not popped up in the Coalition’s campaigning.
Despite the odd period where the exchange rate does diverge from fundamentals, the floating exchange rate clearly has served the economy well as it has acted as a safety valve for swings in the terms of trade.
On income tax scales, neither side of politics is talking about hikes or cuts on the single biggest source of government revenue. On the goods and services tax, both sides have ruled out changing its scope and coverage for at least the next half decade. The level of age pension and unemployment benefits also has bipartisan support, with no changes to the current means for adjusting these payments being suggested.
The list of key economic policy areas where there is agreement is long. For some, like the Reserve Bank and exchange rate, this is a good thing. These policies have serviced us well. For other issues such as tax, it is a bit of a pity that not much will be done for many years.
Stephen Koukoulas is managing director of Market Economics and was an economics advisor to the former Prime Minister Julia Gillard.