Wednesday, May 18, 2011

This tough, but no tougher - Parkinson

The new Treasury boss is scared

The head of the Treasury has outright rejected claims his budget should have been tougher, saying if it had cut any harder jobs would have been placed at risk.

Fronting up to Sydney business economists in his first public appearance since taking over from Ken Henry, Dr Martin Parkinson addressed “some in this room who may argue for more rapid tightening, both now and into the future”.

“I respect your view, but I in turn disagree,” he said.

“A few of you have wanted tighter fiscal policy all along - as indicated by the criticisms
of policy as being excessively stimulatory in the midst of the global financial crisis, or not being withdrawn before now.”

“As some of you know I was Treasurer John Dawkins deputy chief of staff dcuring the early 1990s recession"...

“Let me be clear. As one who chased the economy down in the early 1990s with repeatedly inadequate policy responses, I do not believe we can be precise about the extent of stimulus required in the midst of a crisis”.

“If the response is inadequate, we consign more Australians to sustained unemployment and lower living standards - not for the short-term, but for the long-term.”

“My own sense is that doing significantly more to tighten fiscal policy at the moment would inject the risk of slowing the economy excessively.”

Dr Parkinson said the dollar was set to stay “persistently high for some time”.

“Most Australian businesses are well equipped to deal with short-term volatility of the exchange rate. But what we are dealing with now is a very different type of event — not a temporary appreciation, but a sustained shift,” he said.

“This will challenge a number of existing business models. The manufacturing and other trade-exposed sectors that are not benefiting from higher commodity prices will come under particular pressure, but all sectors
will be affected.”

“Many people have said to me all the government needs to do is to cut middle class welfare.”

“Well in the budget the government attempted to make some structural improvements to the underpinnings of the budget; we have all seen the response. So I think as a practical question this is a pretty significant tightening.”

“I think in the circumstances trying to tighten faster over the next two years introduces an added degree of risk that we don’t need to.”

“Beyond two years - after 2012-13 - I think the argument around what’s an appropriate stance of policy is one that’s legitimately more open.”

It would be important to build on what had been characterised as move against middle class welfare in future budgets.

Suggestions Australia needed to reduce its dependence on China made no sense because China set world prices. Australia would be dependent on China whoever it sold to.

It was important that Australia received an adequate return for swapping non-renewable mineral and energy assets for income. That was an argument for a mining tax.

Published in today's Age

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