Extraordinary assumptions or reality growth – that’s the question
JOE HOCKEY is more an entertainer than a politician. With the blessing of a gift of the gap – as the saying goes – he can be funny at times, either inside or outside the Federal Parliament. Perhaps, more important to him is his cunning way to get out of a tight corner when he is confronted with the words he uses.
In a political sense, Hockey is the bull dog in the Liberal-National Opposition and the right man – an asset – to his leader Malcolm Turnbull. Sometimes, it is difficult to know whether he really believes in what he says or it’s just politics.
His choice of words, such as “casino economics” and “plucked out in the air”, stung more people than they were meant to. They were uttered in his strong attack on the Rudd government’s Budget, knowing but not realising at that moment that the estimates were based on the calculations of the Treasury senior officials and economists.
Obviously, he also failed to take into account that the Budget’s deficit and debt by “the biggest spending government in modern Australian history” are not incurred in normal economic situation as it was in the former government’s rein.
They were caused by the overwhelming effects of the current global recession , which also hit hard on Australian exports to most of its overseas markets which are also reeling from the worst ever world economic situation since the Great Depression of 1929.
Unless Australia spent the big money which, unfortunately, put the nation in debt to the tune of $9,000 per person, more businesses will be in serious trouble or collapsed, more jobs will be lost, more people will be in poverty and, subsequently, it will be even harder to recover from the financial and economic meltdown than it would be in a normal recession cycle. And the debt of $300bil will be far greater than it is now.
Almost every nation in the Americas, Europe and Asia is in extraordinary big debts, some even bigger compared to Australia’s, to deal with the unusual circumstances in their economies.
Most of them spent billions to bail out big banks and institutions, manufacturing firms and the housing industry that threatened to collapse which, fortunately, Australia does not have to do. But the Rudd government has embarked on economic stimulus packages, including family bonuses, increased housing grants for first home-buyers and infrastructure projects, modernising school buildings and other ventures to save 200,000 jobs that are at risk of being lost.
So, of course, Hockey’s descriptions of the Budget estimates irked Treasury Secretary Ken Henry, who retaliated with detailed explanation on how they were calculated.
Grilled by ABC 7.30 Report presenter Kerry O’Brien in Sydney early this week, Hockey was quick to shift the blame on Prime Minister Kevin Rudd for the $300bil debt.
When told that the Treasury had based its estimates of a six-year consecutive growth to recover the money on the basis of a period between 1993 and 1999 when Australia’s growth averaged 4.3% per year, Hockey replied: “… you are arguing the average versus what they are specifically basing as their assumptions.”
The interesting exchanges between Hockey and O’Brien are in the following extract:
O’Brien: Well, do you acknowledge that you’re not arguing with Kevin Rudd, you’re arguing with all the economic muscle that the Treasury officials themselves can bring to bear?
Hockey: Oh, Treasury not beyond, you know, getting it wrong.
O’Brien: But doesn’t the government have to rely substantially on what Treasury is telling it?
Hockey: Well, of course, you do. Of course, you do.
O’Brien: Just as your government did?
Hockey’s reply was an example of how the Treasury had underestimated the total revenue from cigarette tax by more than $1bil since 2001. However, neither he nor O’Brien mentioned that increased cigarette tax plus the continued intensive campaign against smoking, inevitably, have great effects on smokers and, consequently, reduced the government revenue from this source.
O’Brien continued: But you also have to acknowledge that this is the best advice the government has to go with?
Hockey: Terrific. But Kevin Rudd …
O’Brien: So, if the government is basing its policies on the economic advice in the same way that your government did, then what are you criticising?
Hockey: Well, my criticism is with Kevin Rudd. Mr Rudd put his hand on his heart and said to the Australian people, “We will have the nation out of deficit within six years.” Now that was all based on extraordinary assumptions into the forward estimates. That’s our argument …
O’Brien: You’re saying they are extraordinary assumptions. Ken Henry (Treasury Secretary) was saying they’re conservative assumptions.
But, as a matter of fact, Hockey also has his own assumptions, extraordinary or not, when he said Henry had come out “so aggressively defending his assumptions today illustrates the fact that there was a consensus view among all the economists -- a consensus view that the Treasury assumptions were optimistic…”
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