Sunday, October 21, 2007

THE DEBATE: John Howard is anything but economically conservative

By the way, I scored last night's debate a really big win to Rudd, as would most viewers, especially Channel Nine's wormsters who seemed to be willing Rudd to say good things, reacting even before he opened his mouth.

Both leaders say repeatedly that they are economically conservative.

Last night in his debate with Kevin Rudd, John Howard’s mask slipped.

He was asked about the $34 billion of tax cuts he has promised to pump into an already superheated economy in the four years to come.

The Australian’s Paul Kelly reminded him that the Reserve Bank was predisposed to increase interest rates because of its concern about inflation even before those tax cuts were promised.

His question: “Given the demand that these tax cuts will further put into the economy, are you prepared on economic grounds to reconsider, if need be?”...

The Prime Minister’s instant response: “What the tax cuts? No. I think the tax cuts are eminently responsible.”

His logic: “In and of themselves reductions in taxation are not inflationary provided they are affordable and they still leave a very strong budget surplus”.

It is an argument just about no-one else would be prepared to make. Apart from the Treasurer Peter Costello (doing what he can to maintain a straight face) and the head of the Australian Chamber of Commerce and Industry whose enthusiasm for tax cuts appears to have erased the economic training he had in his youth.

The size of the budget surplus or deficit is irrelevant to whether or not $34 billion of tax cuts would be inflationary.

What is relevant is the state of the economy they are going into.

If retail spending wasn’t leapfrogging at the rate of 0.7 per cent a month, if house prices and rents weren’t on the march again and if jobs growth and wages growth weren’t making consumers richer by the month maybe the tax cuts wouldn’t boost inflation.

Perhaps if the economy was depressed, not enjoying the biggest boost to its living standards in two generations. If inflation wasn’t already moving rapidly to or beyond the Reserve Bank’s danger zone, maybe then $34 billion of tax cuts would do no damage. They might even do good.

But to argue that he is certain that they will do no damage when most of the signs point in the other direction, and to argue that he is so certain, that he won’t reconsider the three-year program of tax cuts even “if need be” suggests that the Prime Minister isn’t (or is no longer) an economic conservative.

It suggests that he is not concerned about the future beyond the next five weeks.