The election and Australia's economic future

[Patrick]

Which side will do better if the USA double-dips into recession again or if China's economy suddenly falters or if Europe's debt issue grows beyond Greece?

[Matt]

Hi there. Nice question. I would say the Coalition, only because Labor's plan to get back to surplus is more dependent on resources than the Coalition's, and if a negative external shock occurs, export volumes and values will fall as commodity prices fall, which puts in jeopardy our revenue from the mining sector. From what I read in the papers, the expected tax revenue from the mining sector is based on fairly high volumes and values of our commodities, which in a negative external shock, will fall, meaning our ability to get back to surplus is threatened, undermining our ability to conduct good expansionary fiscal policy. Keynes, despite what some people say, is a fan of small government, and likes large fiscal spending in emergencies only. Europe and the US are failing now because they used expansionary fiscal policy from a position of massive debt, and now their economies are at real risk of medium term deflation because they are now cutting debt by taking government demand out of the economy. Similarly, if we use expansionary fiscal policy from a position of debt, we are under pressure, like the Europeans, to cut debt, and thus undermine the stimulus package and the business and consumer confidence that it creates.
This is only one consideration - I have not thought much about reform, but fiscal policy, as we have seen, is vitally important in Australia in surviving negative shocks that we have little ability to prevent happening.
Labor may be more keen to diversify away from mining, which I would say is a good thing. A more resilient economy is what we need in a small, open economy like Australia. Having a pool of public savings is part of that resilience.

[Patrick]

Matt, the problem is that I have seen up close how the Coalition manages public money - and it is not a pretty sight! The amount of waste, especially in the last 6 years of the Howard government, was colossal. Even Ian Watt, who is true blue, said that to me. also, the would be Treasurer, Hockey, is incompetent - his Access card proposal was a $1 billion dollar disaster in the making - if I had not managed to kill it.