IMF Report on Australia
I have no doubt that Terry McCrann does not want to be labelled a spokesman for Donald T. But after his conclusion yesterday that, in the wake of what he described as “the Trump-quake”, Turnbull now has a last chance to pull his socks up, Terry has again pursued one of Trump’s favourite targets viz international institutions. On this occasion it is the International Monetary Fund and the report by its “mission” to Australia to report on the Australian economy and the economic policy being pursued by the Turnbull government.
In this article in the Herald Sun, headed “Donald trumps the International Monetary Fund”, McCrann is strongly critical of the IMF report’s apparent failure to understand why negative gearing investments are increasing (Chinese investments here in particular) and the difficulty of handling the increasing debt. He also savagely attacks the report’s almost unbelievable conclusion that the government is trying to cut the budget deficit too quickly!
McCrann asks whether one would trust incoming president Trump or “the very model of a ‘beltway insider’, IMF boss Christine Lagarde” (the beltway reference is of course to the insiders in Washington DC). He rightly concludes that this is about “more of the same policies and thinking which got us into the GFC and have seen us bogged in economic treacle since”.
On this occasion, McCrann’s criticism is also reflected in Judith Sloan’ comment in The Australian suggesting that Treasurer Scott Morrison should “bin that wacky drivel” and that Christine Lagarde, who “can’t get enough of suggestions of how to spend other people’s money”, is not an appropriate economic analyst (see Sloan on IMY Report). Sloan refers to what has become almost a slogan for solving the current slowness of economic growth viz increase government spending on “infrastructure”, and which is one of the recommendations of the IMF report. The difficulty of course is to find projects which have an economic return and Sloan rightly draws attention to the cost problems faced because of the power exercised by unions, and the CFMEU in particular, under our existing workplace relations arrangements. As I have argued, Turnbull needs to get across to the electorate that the restoration of the ABCC is only a “first step” in the reform required.
It is of interest that, while the new Governor of the Reserve Bank, Phillip Lowe, made public comments on the IMF report, the head of Treasury, John Fraser, did not do so. Lowe said the right thing, more or less, by urging the government to press ahead with its budget repair (see attached report IMF Urges Bigger Spend on Infrastructure to Fuel Growth). Also of interest is a report that former Treasury Head, Bernie Fraser, told his interviewer (just before the IMF report was released) that ‘arguments in favour of fiscal tightening hold no truck’ with him and that ‘the oft-used line that today’s spending will punish future generations is just silly. As ridiculous as the aim to limit total government expenditure to 25 per cent of gross domestic product’. “That’s not a policy for government spending, that’s a slogan. There is no evidence this works and I’m disappointed it had been backed by Treasury” (see attached AFR report “Bernie Fraser”). Fraser was Treasury Head during my last three (difficult) years as Deputy.
Climate Change Policy
In his article McCrann also refers to the hope that Trump could “bring the Western world back to energy sanity, providing the best chance of turning back the global tide of climate main-chancing and inanity”. He is rightly cautious about that possibility, saying “I’ll believe it when I see it”.
But related to this climate issue (and sanity) is an important submission made by the Minerals Council of Australia to the Senate inquiry into the retirement of coal-fired power stations (see this report in The Australian, Retain Coal as Dominant Energy Source). This submission righlty argues for the retention of Australia’s competitive advantage in low-cost electricity. Environment Minister Frydenberg has asserted on more than one occasion that coal will remain a principal supplier of energy until 2050 and that is endorsed by the MCA submission. But Turnbull needs to provide his support and this should include an attempt to obtain support from State governments.
The importance of maximising the use of Australia’s cheap coal means there are potential political implications arising from this submission and the report of the Senate inquiry. It will be recalled that in December 2009 Turnbull was leader of the Liberal Party and had expressed support for the Rudd government’s proposal to establish an emissions carbon trading scheme, although he sought changes to the proposed scheme. Abbott opposed the scheme and a spill resulted in him winning the leadership 42-41 on 1 Dec 2009. Depending on the outcome of the Senate inquiry and Turnbull’s response to it, it is possible that another spill could occur early next year.