Critics lined up for the national sport of Swan bashing yesterday, provoked by the release on Monday of former treasurer Wayne Swan’s new book ‘The Good Fight’.
Swan is an eminently bashable sort of bloke. During the Rudd and Gillard years he was often flustered, retaliatory and un-media-savvy in front of cameras. Perfect material for a media feeding frenzy.
The problem with this kind of sport, however, is that while Swan is breaking out in sweat, waving his arms about and berating journalists, partisan commentators get away with murder in rewriting his economic record.
The ‘debt and deficit’ crisis facing Australia -- the main albatross critics hang around his neck -- gains symbolic force every time it is trotted out by Coalition MPs or, much worse, repeated by media commentators who stubbornly refuse to acknowledge Australia’s economic performance in the years following the Lehman Brothers collapse in late 2008.
Essentially, the line is “we could have done so much better”, despite that fact that no other country managed to do so.
Nationals leader Warren Truss repeated the debt horror story on this week’s Q&A program, saying “never forget we are paying over $1 billion every month on the interest on this debt.”
At a ten-year government bond rate of 3.4 per cent, and with a gross debt of $329bn, that’s about right.
However, as Truss knows (at least I hope the deputy PM knows), that’s around $125 per household per month, which pales into insignificance alongside the mortgage and unsecured debts carried by Australian households.
Reserve Bank of Australia data shows total household debt in Australia is now $1.87 trillion -- nearly six times gross federal debt. Servicing that debt really could turn into a crisis, as even at current mortgage rates (the lowest credit rate paid by most households) that debt costs around $1050 per household per month on average.
In fact when credit card and other unsecured interest rates are factored in, plus a few rate hikes next year, that figure will be much larger.
The second plank of the debt and deficit attack is that it was Swan’s profligate spending that caused the problem -- not, as he claims, a collapse in revenues.
But does that stand up to scrutiny? A look back over recent spending patterns is instructive.
First, it’s important to remember that since the days of the Keating ‘fiscal black hole’ that incoming treasurer Peter Costello discovered in 1996, Australia’s demographic structure has been skewed somewhat by the retiring baby boomer generation and an unexpected increase in longevity.
That means a larger burden on health costs and pensions, but potentially a lower participation rate -- fewer workers to fund such costs.
In addition to that, Australia has grown richer through a combination of productivity gains in the late 1990s and early 2000s, and a once-in-a-lifetime resources boom.
As a starting point, then, we need to spend more money on health care and pensions, which makes it a happy coincidence that we’re richer than we were in 1996.
The other two forces pushing up nominal government spending are much easier to account for -- inflation and population growth.
In the chart below then, federal government tax receipts and spending are presented in 2014-dollar figures, and expressed as a per capita figure to account for population growth.
Costello’s first budget (the first data point above) cut spending so hard that unionists rioted through Parliament House. The second did the same, resulting in per capita spending (again, in today’s dollars) of $10,500.
From there spending increased through most of the Howard years. That’s pretty natural, as when the country is rich and paying more taxes, tax-payers demand better services, infrastructure and so on.
Costello handed down his last budget in May 2007, with spending just a touch under $15,000 per head in today’s dollars -- with tax receipts still more than covering that spending.
That allowed the infamous final wave of income tax cuts as an election sweetener, which Labor foolishly agreed to make as well -- just as revenues collapsed.
Swan’s first budget in May 2008 was handed down during phase one of the GFC, the sub-prime crisis, which hit share markets hard. Corporate tax receipts were down, as were capital gains tax receipts.
When the second phase of the GFC swept global markets like a tsunami in October 2008, Swan and Rudd, advised by Treasury secretary Ken Henry, hurriedly announced a $10.4bn stimulus package, followed by a $42bn package in early 2009.
The budget was blown, but as Steve Keen recently demonstrated (see chart 3 in his article 'The truth about Australia’s unemployment rate shocker', August 11), the stimulus helped avoid a US-style unemployment spike.
That is not to underplay the effect of China’s stimulus spending on our jobs market -- but the local stimulus undoubtedly had a strong positive effect.
Most economists agree that stimulus spending went on too long. However Swan, and then finance minister Penny Wong, must be given credit for the fiscal consolidation in the 2012 budget -- in the chart above it is as steep as any of the consolidations under Howard when adjusted for inflation and population growth.
Finally, it’s important to note that only one treasurer in history has spent more in per capita terms than Wayne Swan -- none other than Joe Hockey, who in his first budget statement (the MYEFO) decided to blow out Labor's projected deficit even further with a $9bn recapitalisation of the RBA, and reinstation of the $1.8bn car-leasing tax rort that Labor had abolished.
Put in context, Swan’s economic management saved the livelihoods of many employees and small business owners during the GFC years and racked up a debt that costs $125 per month per household to service.
Swan might be derided as arrogant, self-serving, vindictive towards Kevin Rudd or a host of other things. But his economic record should be seen -- perhaps by historians if not in the current media environment -- as a solid performance, without which we’d all be much worse off.