The global economy is in a parlous state. Australia's "miracle economy" is little better, except for the effects of what was looking like our biggest mining boom. But major mining projects are likely to be cancelled or postponed.
The Reserve Bank's interest rate cute was welcome. But structural reform is more important than monetary ease, and sadly there is no sign of relevant action.
We were told last week that Treasury secretary Martin Parkinson was assigning front-line responsibility for the economy to the Reserve Bank and monetary policy, with fiscal policy to be set largely in a medium-term framework. More important, except in major crises when all bets would be off, fiscal policy should rely on "automatic stabilisers".
So far as attempts to stabilise an economy go, I am in strong agreement with this approach, and this was a major theme of my 2011 book, Great Crises of Capitalism. This book, incidentally, asserted in its first sentence: "The global financial crisis of 2007-08 might still produce a Great Depression."
However, I am far from certain non-economists would understand the distinction "so far as attempts to stabilise an economy" is concerned.
It is surely Treasury's task to recommend structural reforms, and there is little recent information about Treasury's views on economic reform. To be sure, officials frequently draw to attention the recent evidence of weak productivity growth, and sometimes hint the policy reforms of the 1980s and 90s were responsible for the burst of productivity growth following those reforms.
But what is the current stance of officials on economic policy reform? Judged by results as well as speeches, Treasury was highly active in seeking to protect Australia from economic downturn at the time of the global financial crisis.
"Go now, go hard, go consumers" was the cry, with handouts to consumers, pink batts in (and then out of) people's ceilings, expensive (because rorted) school refurbishment programs and the profligate (and unnecessary) National Broadband Network.
The automatic response of the Rudd and Gillard governments has been to throw money at problems, and there is no evidence the Treasury has opposed this highly activist approach to fiscal policy.
Possibly Dr Parkinson's recent remarks -- if accurately reported -- represent a resetting of Treasury's approach to "stabilisation policy", and if this is the case I salute him.
One must assume, however, that Treasury's initiatives on the taxation front are still fully supported. What about the badly sold and extremely complex mining tax, which brought down a prime minister and which was then watered down to a point that will hardly bother the majors but will severely limit the activities of prospectors and junior miners?
The carbon tax is actually a giant tax-and-welfare churn that will generate little net revenue while imposing great administrative burdens and making little difference to Australia's CO2 emissions, and may well bring down another prime minister. And there has been a general increase in rules and regulations -- admittedly a long-term problem -- that experienced commercial leaders say is adding greatly to the burden of doing business in Australia.
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