Thursday, February 26, 2015

John Fraser. The new treasury boss defends austerity and Ronald Reagan

The new head of Australia's Treasury is a fan of the Ronald Reagan tax cuts in the US, believes austerity has had a bad press and is wary about using government spending to stimulate the economy.

Meet John Fraser, until a few weeks ago the head of UBS Global Asset Management in London. The Abbott government appointed him in December to replace the long-serving public servant Martin Parkinson, who stepped down after being told he didn't have the confidence of the prime minister.

Although he appeared before Senate estimates hearings in an earlier life when he worked for the Treasury in the early 1990s, Wednesday's appearance was Mr Fraser's first as departmental secretary.

And he was free with his opinions.

He was "a great believer" in the business and personal income tax cuts introduced by US president Ronald Reagan in the early 1980s. He was living in the US at the time and saw them up close. Their critics say they pushed the US budget deeper into deficit, but Mr Fraser told the hearing they "helped reinforce the entrepreneurial spirit which is alive in some of the smaller and medium-sized businesses in the US" which was one of the key reasons it did so well. Others were flexible labour and product markets.

Critics of austerity measures - including those in the International Monetary Fund - had failed to grasp their "clear success" in places such as the United Kingdom.

"I was in Great Britain when the IMF chief economist came to look, and he said he had been pleasantly surprised that the UK had been doing so well with the austerity program," he told the hearing.

"I think the clear success in the UK is interesting, and I would there's been clear success also in the United States as well as elsewhere. But we are a sovereign nation, we are a proud sovereign nation, we have to tailor policies to our own conditions."

When it comes to using government spending to stimulate the economy, Mr Fraser is cautious.

"My own view is that I approach fiscal stimulus, in whatever circumstances, with a great deal of care," he told the hearing. "I am old-fashioned. I don't like public debt...

"One of the reasons I don't like it is because public debt leaves you liable to the vicissitudes of the market. So when interest rates go up as they did in the late 1980s we suddenly had public debt interest taking up a massive amount of outlays."

While interest payments on government debt at present take up less than 3 per cent of government income, Mr Fraser said the impost would grow rapidly when interest rates climbed.

"To my mind that's money that could have been spent on better things, and I'll articulate that later in other places."

The Treasury's Intergenerational Report, due next week, would outline the twin problems of Australia's ageing population and government debt, he said.  It would have "very real implications for how we spend our money, and indeed also how we tax".

Asked to endorse the actions of the treasury in running up debt during the global financial crisis in order to avoid recession, Mr Fraser said he wasn't in a position to judge.

"I lived through it the global financial crisis and it was remarkably frightening, managing a very large global asset manager. 

"I am loath, if you weren't there in the heat of battle, to make judgments about the efficacy or otherwise of the reaction by countries around the world.

"It was a very difficult situation, indeed an unprecedented one in the world's history."

In The Age and Sydney Morning Herald

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. John Fraser's first speech as treasury secretary, February 27 2015

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