It is long odds on that in three weeks, Joe Hockey will be treasurer of Australia. If the betting odds are right, Hockey and his staff will be going through the so-called ‘Blue Book’ that Treasury Secretary Martin Parkinson and his team have prepared for the incoming government.
The mark of Hockey’s pragmatism and competence will be the extent to which he absorbs that information from Treasury, particularly the news that there is a structural problem affecting government revenue and a potential time-bomb on spending on the non-income generating parts of the economy.
It is hoped that once installed as Treasurer, Hockey will transform his obfuscation, bluster and unnerving disregard of detail that has characterised his performance as shadow treasurer. He needs to move to a position where he takes up the cudgels of reform and productivity-boosting policy change that is required to set the Australian economy up for the next five to 10 years.
On issues such as government debt, Hockey is a chameleon. On the one hand, he is an advocate for 50-year government bonds and a liquid market for government bonds; on the other, he vigorously suggests the debt is bad and that he will reduce or even eliminate it.
He has variously argued for budget surpluses in every year of the Coalition’s first term, suggesting that surpluses of 1 per cent of GDP were a target. Yet is he is on the side of politics that advocates a spending lift and the elimination of a few sources of revenue. Whether this is political posturing or a reflection of an uncertainty about public finances and how fiscal policy works, Hockey must overcome his tendency to mix apples with oranges when it comes to managing the economy.
It is a similar issue with his assessment of the economy, which he suggested was "flatlining". In fact, GDP growth was 2.5 per cent. This is just 0.5 per cent below the long-run trend. It is unlikely (and perhaps impossible) that, as treasurer, Hockey could deliver average real GDP growth above 3.25 per cent. He will see about as many annual GDP growth results at 2-point something as those at 3-point something.
Hockey will also need to quickly and decisively revisit his thoughts on entitlements. There continues to be a major shift in the budget to spending on parts of the economy that do not generate much in the way of income or tax (The Age of Entitlement Election, August 23).
However valid (and not so valid) the various schemes on paid parental leave, disability care and superannuation tax concessions, they are massively expensive and require the paid workforce and the business sector to generate strong growth and high taxes to pay for them.
One hopes that as treasurer, Hockey will resurrect his views on entitlements and overcome the socialist/DLP-type policy agenda from many within the Coalition.
By the time of the 2016 election, Australia’s annual GDP will be around $1.7 trillion. Our population will be over 24 million and around 12.5 million people will be in paid employment. The federal government will be collecting over $400 billion in revenue and spending something close to that amount. Gross government debt will be higher as Hockey embraces the advice from Treasury and the Reserve Bank about maintaining bond market liquidity.
At the same time, the Chinese economy will be $2 trillion larger than it is now, with annual GDP over $10 trillion. Asia will be a few more steps towards overtaking the old G7 countries in terms of global economic and financial market importance, and it will be critical for Hockey to position Australia to take advantage of this.
Should the Coalition win the election, Hockey would be wise to hasten slowly: read the incoming government brief from Treasury, spend a lot of time talking to the best public policy economists in his new department, and think long and hard about the policy trade-offs he must make if he is to match even a fraction of his recent rhetoric.
Hockey will have to be mature in his approach to economic management. His performance will be critical in determining whether a likely Coalition government will be a one-term wonder or something longer lasting.
Stephen Koukoulas was senior economic policy advisor to former prime minister Julia Gillard between September 2010 and July 2011.