How the bean-counters took over the campaign

In essence, what "economic management" has come to mean is the government’s ability to manage the equivalent of a domestic cheque account. That has been an easy task for the Howard Government, taking office as Australia was in the upswing of a business cycle, and, in all probability, leaving office just as the cycle starts to turn down. If Labor wins it may have a much more difficult fiscal task ahead of it, for it could be taking over a weakened economy just as the business cycle turns down.

Not only does this narrow fiscal construction trivialize the whole notion of economic management, it also constrains the options for prudent government policy making - as Fred Argy points out in his recent CPD paper Australia’s Fiscal Straightjacket.

If the incoming government faces a period of sluggish growth or a recession, it would make good sense to run a temporary budget deficit and to borrow to finance productive infrastructure. Worryingly, there is a risk that a future Rudd or Costello Government - committed to the mantra that the budget must always be in a cash surplus - will decide it is not politically feasible to practice sound counter-cyclical economic management. As a result, if we do run into a recession, it could be much more costly and painful than necessary.

The economic debate we should be having is about the structure of the Australian economy. How can we ensure prosperity once the commodity boom is over? What do we need to spend on our collective assets - our physical infrastructure, our human capital, our environmental assets - to ensure our economic resilience and international competitiveness? How can we restore proper incentives into our taxation and welfare systems to distribute the benefits of economic growth and to preserve trust in our reward systems? How can we restore household balance sheets with real, liquid assets and reduce the insecurity of personal debt? How can we supply housing in places where people want to live? How can we bring the excluded and marginalized into the mainstream economy?

These are all difficult tasks - much more difficult than managing a cheque account.