It was refreshing to hear Transfield chairman and head of the Abbott government’s audit of commission, Tony Shepherd, quoting the late, great Ernest Hemingway yesterday.
He slipped a line from The Sun Also Rises into his opening remarks to a Senate inquiry into the activities of the Commission of Audit.
The quote relates to character Mike Campbell, WWI war veteran, and heir to a large fortune (one day), who drifts around Paris and other cities drinking, and borrowing money.
“How did you go bankrupt?” another character asks.
"Two ways," Mike said. "Gradually and then suddenly."
Shepherd used the quote to point out that our relatively modest federal public debt should not be treated lightly.
The ongoing gradual increase in debt that Treasurer Hockey artificially accelerated in his first budget update (so as to artificially slow it again closer to the 2016 election) could easily get out of control. Just like Mike’s drinks tab at Café de Flore.
Shepherd is criticised by many on the left as pushing a ‘big business’ Business Council of Australia agenda, and relishing the job of slashing debt by ‘cutting the budget to the bone’.
In reality, he knows the uses of debt and in public policy terms is quite the closet Keynesian.
Besides the fact that his own group, Transfield, has been criticised for taking on too much debt in the past two years, Shepherd’s time as head of the BCA has involved some pretty sensible and moderate calls for action on the federal budget.
The BCA’s policy document ‘Action Plan for Enduring Prosperity', released before the September election, charted a sensible path back to surplus. It included many suggestions that the progressive side of politics would support. (The folly of Shorten’s knee-jerk attack, October 24)
The Australian reports that Shepherd told the Senate Inquiry yesterday: “...if we have sustained budget deficits and build up our national debt and then something happens again which is beyond our control ... our capacity to respond will be severely constrained. The practice should be you build your reserves ... so the Commonwealth has the flexibility.
“We had those reserves built, going into the GFC, and we had the capacity to respond and that certainly helped us, there's no doubt about that. Now we need to do the same thing again – we need to pay back our debt, build our reserves and build the capacity to respond to the next, shall I say, almost inevitable downturn."
Hurrah for Keynes!
The problem, as many market watchers will be aware, is that the ‘inevitable’ downturn could be sooner than expected due to the uncertain long-term outcome of central banks’ money-printing splurge over the past couple of years.
The reserves that Australia took into the GFC were not hard-won by scrimping and saving, but largely a tax revenue windfall from the first phase of the mining boom, heavily topped up with asset sales such as the three phases of the Telstra privatisation. Labor inherited all that and spent it – then spent a great deal more.
Now, something more drastic is required than what Howard and Costello did to balance the books. That’s why the left keeps singling out Shepherd as the dark knight of the Abbott government’s cut-to-the-bone offensive.
And he plays the role well. Yesterday he managed to pour a fair bit of fuel on the fire, but conceding that the Commission is looking at expanding the GST – even if Abbott’s government isn’t – talking to Australia Post and SBS about selling them off, and considering a rapid budget turnaround worth around 4 per cent of GDP.
The only thing he forgot to do was put a sheet over his head and rush around the room, arms outstretched, shouting ‘woo-oo-oo!’ to further scare the progressive Senators seeking to expose his wickedness.
But let’s pause for a moment to remember the politics of the ‘budget emergency’ that Shepherd as his razor gang are supposed to fix.
By putting the GST, huge budget cuts, and controversial privatisations on the table, Shepherd is giving Abbott lots of ways to be more popular than expected at budget time – but not doing half of what the Commission suggests.
Abbott and Hockey will, most likely, front cameras in May with that shocked-sad-serious face they’ve been working on to say “we won’t make working Australians pay for Labor’s mistakes”, before explaining why cuts need to be more gradual than Shepherd demanded.
In the meantime, the more the left hounds and pillories Shepherd, the better for Prime Minister Abbott. ACTU boss Ged Kearney was at it yesterday, tweeting: “Ridiculous 2say Tony Shepherd has no conflict of interest @JoshFrydenberg. He has carte blanche to push BCA agenda.”
No. He has carte blanche to request the BCA agenda – and more. And Tony Abbott has carte blanche to say no to the bits that will lose him votes at the next election.
The Sun Also Rises finishes with one of the great quotes of 20th century literature. War veteran Jake is riding in a cab with Lady Brett. The pair are in love, but Jake has lost his ability to make love due to a war injury.
The famous passage is not a bad metaphor for the fiscal reforms that will be desired, and those that will be delivered:
“Oh, Jake,” Brett said, “we could have had such a damned good time together.”
Ahead was a mounted policeman in khaki directing traffic. He raised his baton. The car slowed suddenly pressing Brett against me.
“Yes,” I said. “Isn’t it pretty to think so?”