Opinion polls suggest a comfortable win for the Labor Party at the federal election. If they’re right, Chris Bowen will be treasurer, with responsibility for economic management, taxes, government spending, and the regulation of business and financial institutions.
What challenges would he likely face? And will he be a strong and effective treasurer?
Bowen was treasurer for the three months of the second Rudd government in 2013; he’d earlier held a number of senior ministerial positions from late 2007, among them assistant treasurer, financial services, competition, immigration, tertiary education and small business. He’s been the opposition Treasury spokesman in recent years.
Bowen had ringside seats when the two worst budgets (in my assessment) of recent years were presented in the House of Representatives: the 2013 budget of Wayne Swan, which was built on totally unrealistic projections for government spending and taxes and thus could not deliver Swan’s oft-promised early return to a balanced budget; and the 2014 budget of Joe Hockey, which broke a wide range of election promises and wasn’t well supported by the then prime minister and treasurer.
Bowen has written a detailed and interesting book, The Money Men, covering the “twelve most notable” treasurers since the Australian parliament came into being in 1901. On my reading, he sees the best of our post-war treasurers to be, in chronological order, Arthur Fadden (treasurer 1949 to 1958), Bill Hayden (1975), Paul Keating (1983 to 1991), and Wayne Swan (2007 to 2013).
As someone who can remember all post-war treasurers including Ben Chifley and as someone whose vantage point is in the political centre, I can’t resist the temptation of offering my list of outstanding treasurers: Fadden, Hayden, Keating and Peter Costello. In my view, Bowen is too kind in his comments on Swan as treasurer. It was the fortunate timing and scale of China’s fiscal easing that enabled Australia to avoid recession during the global financial crisis, not our massive fiscal deficits. And I include Costello, whose many budget surpluses were not just an end in itself, as Bowen states, but gave a worthwhile boost to our low national saving.
These will be among the key challenges to be met:
1. Avoiding the mistakes in economic management made by the Whitlam and Rudd/Gillard governments. The Whitlam government held to its ambitious program for social change. But its economic management left a lot to be desired, particularly when Jim Cairns was treasurer — until rescued when Bill Hayden was appointed treasurer in June 1975. The Hawke/Keating government in office from 1983 to 1996 quickly took on board the lessons from the Whitlam years (and from the shortcomings of the governments led by Malcolm Fraser between 1975 and 1983).
A Labor government elected in the forthcoming election would also need to avoid the loss of credibility in economic policy when Swan was treasurer, who would frequently predict the budget soon be on a path to balance, but consistently failed to deliver on this commitment.
Labor is now proposing a “war chest” totalling $240 billion over 10 years to finance extra government spending as well as some “budget repair”. The risk is these projections could seriously overestimate the additional government revenues the new measures would raise. For example, receipts from the changes in negative gearing seem likely to be heavily constrained by the slowdown in investment housing. And as people respond to the change in the taxation of “excess” franking credits, revenue will likely fall well below the levels currently being forecast.
2. Carefully managing policies to raise wages. A newly elected Labor government would be under enormous pressure to quickly bring about increases in average wages and social security payments which have been flat in recent years. In fact, sluggish growth in average real incomes is a global experience in recent years; solving it is difficult — and mainly will require policies that boost productivity.
3. The global economy.
The world economy is unlikely to continue the buoyant and widespread growth it’s achieved in recent years. The Chinese economy — now the dominant global influence on economic conditions in Australia — is slowing both in trend and cyclic terms; at times, too, fears of deep recession in China will run ahead of the reality. The US cyclic upswing, which began in mid-2009, will probably run out of puff in the next two or three years; later the overly large US budget deficit could well become a source of instability, not stimulus.
In The Money Men Bowen says the following of two of his predecessors as treasurer:
“(If) Hayden had been made Treasurer much earlier (than in June 1975), the history of the Whitlam government would have been very different … Hayden brought discipline, toughness and a well-developed understanding of economics to the role."
“(In 1949) Fadden … came up against the perennial problem of the promises and expectations that were stoked in opposition proving difficult to deliver under changing economic circumstances in government.”
Apt observations — and worth keeping at front of mind.
Don Stammer is an adviser to Stanford Brown Financial Advisers. The views expressed are his alone.