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Friday, December 09, 2016

Labor attacks 'treasury' report discrediting stimulus

Labor has questioned the bona fides of a report apparently commissioned by the Treasury that plays down the role of big government spending in helping Australia survive the global financial crisis.

Written by Griffith University professor Tony Makin, a long-term critic of the so-called cash-splash during the crisis, it finds "no evidence fiscal stimulus benefited the economy over the medium term".

"In sum, the nature of Australia's fiscal stimulus was misconceived because it emphasised transfers,unproductive expenditure such as school halls and Pink Batts, rather than tax relief and/or supply side reform, as occurred for instance in New Zealand," the paper says.

"Largely implemented after the worst of the crisis had passed, fiscal stimulus countered the effectiveness of monetary policy by keeping market interest rates higher than otherwise and therefore contributed to a strong exchange rate. This worsened Australia's international competitiveness and damaged industries in the internationally exposed sector, particularly manufacturing."

Australia is one of the few countries in the developed world to have escaped recession during the crisis that began in 2008. Others, including New Zealand, did not.

Professor Makin has previously been taken to task by the Treasury for his criticism of economic stimulus during the crisis, which it said was "based on a theoretical model that does not apply in Australia's case in general and assumptions that did not hold during the global financial crisis".

The status of his new paper is unclear. It is dated August 2016 but did not appear on a Treasury website until late Friday morning after requests for it and after two newspapers were apparently given early access to it. Even then, it wasn't placed on the Treasury website itself but on as lesser-known site entitled "Treasury Research Institute" which the treasury says was established earlier this year to report on "topics of interest to Treasury to encourage work or collaboration with Treasury".

Only on Friday afternoon did the treasury create a link to the Treasury Research Institute from its homepage. It said the institute would "regularly publish papers to the site on topical economic and policy issues, written by both external contributors and staff".

Labor treasury spokesman Chris Bowen said he would write to the secretary to the Treasury, John Fraser, to ask why he commissioned work by a "well-known ideological opponent of the stimulus package".

He said its release seemed to have been designed to distract attention from government's backflips over energy policy and to preempt calls for further stimulus in the wake of national accounts figures showing the economy going backwards.

On Wednesday, Treasurer Scott Morrison attacked Labor's spending during the crisis, saying: "They gave money to dead people and thought that was going to grow the economy; that was a nonsense".

Mr Bowen said the Treasurer ought to be concentrating on the present rather than the past.

At the time, the Organisation for Economic Cooperation and Development and other international bodies had praised Australia's response to the crisis as "one of the best designed and implemented in the world".

In The Age and Sydney Morning Herald