Tag Archives: Productivity Commission

Five years too late

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It is so depressing to read such stuff. From The AFR today:

Dr Banks suggests with monetary and fiscal policy no longer able to spur additional economic growth, it is time for other changes that can spur activity.

This was the former head of the Productivity Commission lamenting that we have run out of the ability to use monetary and fiscal policy to generate higher levels of economic activity. The depressing part is, of course, that anyone ever thought we could. What we are seeing today is the end game in having wasted our resources in various loss-making stimulus projects. But he is the same as the rest of the economics fraternity. They are genuinely mystified by the deepening downturn that should have gone away with all their public spending.

Possibly even more irritating is to find the former Secretary of the Treasury, Martin Parkinson, on the front page of The OZ discussing Slow growth the reason to reform not delay. He was not just the Secretary when Labor was in government creating the problems, he continued as Secretary well into the present government’s period in office. Tell me again, Joe, how reformist you are. Well, now, way too late, we hear this:

“You will never be able to ­increase the potential growth rate without increasing productivity, and at the moment our performance on that is terrible. That is the starting point for the argument on reform.”

Is that so? So tell me, Martin, about all the public spending you signed up on as part of our stimulus and all the cuts that were never made.

Then there’s this: Labor takes aim at Malcolm Turnbull as NBN cost blows out by $15bn. The subhead:

The Labor leader, Bill Shorten, says communication minister ‘hasn’t been doing his day job properly’ as negative polls hint at Coalition leadership change

At least someone is pointing out just how bad a Minister he’s been. And with no little thanks to Malcolm, Bill Shorten is now preferred PM.

Just don’t do it

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Two articles at opposite ends of today’s AFR both discuss public spending on infrastructure but with a different message from each. There is firstly on the front page, Project spree risks AAA rating ,which begins:

The government’s AAA credit rating may be at risk if it embarks on major infrastructure initiatives before sweeping changes to how projects are funding are made, according to the ­Productivity Commission.

The rest is behind the paywall but the article discusses the views of Peter Harris, the Chairman of the Productivity Commission, who is trying to get the government to think long and hard before it spends our money. Infrastructure is seldom the best use of our resources and before we commit to such spending there needs to be a very thorough cost-benefit analysis undertaken with a real intent to ensure we are getting value for money.

Pet projects have been an ongoing disaster. There is only one reason for a government to enter into such expenditure and that is because there is a net dividend to the economy. If you think, for example, that Building the Education Revolution contributed anything at all to the Australian economy, you should not be making infrastructure judgments. Only if you are able to articulate why the BER was an almost total waste of money and resources could you be trusted to assess our future infrastructure needs.

Then at the back of the paper we have Peter Sheehan with an opinion piece, The new Keynesians: accident or design?. And his point: however it may have come about the Abbott government is about to launch into a Keynesian stimulus which he thinks is a great idea. As he writes:

Strong underlying growth cannot be assumed. The Keynesian response is clear: there needs to be a major program of infrastructure investment. This should be large-scale additional spending of 1.5 per cent to 2 per cent of GDP a year for five years.

If the government listens to this kind of thing they will end up as bad as Labor. They should dwell instead on this before they start spending money as if we are in some deep depression, also from today’s AFR:

Employment jumped in February by the most in almost two years, led by an oversized 80,500 surge in full-time work, Australian Bureau of Statistics data shows.

Some small part of government spending is productive, some is necessary because it provides assistance to those who are in need, but for the most part government spending is a drag on the economy not a stimulus. Cut the deficit. Get unions out of the road. Reduce unnecessary regulation. And leave recovery to the private sector which is already starting the process we need to continue along.