Lessons from the past – the Howard and Costello years

According to the argument advanced frequently in recent years by the federal Coalition and the mainstream media, the Howard-Costello years – 1996 to 2007 – were a period of sound management.

"The Government of John Howard now looks like a lost golden age of reform and prosperity" is a favourite Tony Abbott mantra.

But is this true? Outside Australia, the Howard years are actually widely regarded as dismally disappointing.

Some in Australia, like veteran economics writer Kenneth Davidson, agree:

"What has happened under Costello's watch is a major financial disaster."

In 1996, Treasurer Peter Costello inherited an economy in promising shape. The tax system had been overhauled, the public service had been trimmed to size and the budget returned to structural surplus after decades of deficits.

Australia's economy strengthened remarkably through the Hawke-Keating. The world watched in awe as Paul Keating deregulated the banks, floated the Aussie dollar, reduced tariffs on imports, "snapped the stick" of inflation, moved from centralised wage-fixing to enterprise bargaining, and privatised publicly-owned non-monopolies.

From about the 20th-ranked economy in 1982 Australia had risen by 1996 to sixth in the world, only behind the United Arab Emirates, Norway, Singapore, Japan and the United States.

That's measured by the variables: income, growth, wealth, jobs, inflation, interest rates, taxes, economic freedom and credit ratings.

By 2007, however, at the end of the Howard years, Australia had slipped back in the rankings to 10th place.

This was masked at the time by strong global growth and prosperity. Plus an extraordinarily acquiescent media. But while Howard and Costello coasted, Australia (with Japan and the USA) was overtaken by Iceland, Luxembourg, Switzerland, Taiwan, Hong Kong and China.

Most of these countries had lower interest rates, greater support for enterprises and smarter investment strategies – and hence more people employed and stronger growth.