Fiscal stimulus push a calculated decision

Josh Frydenberg appears hell bent on delivering a surplus. Picture; Kym Smith.

Would fiscal stimulus be a panicked response to global economic woes, or would it represent prudent action to protect the domestic economy?

While the slowdown in growth is concerning, the economic climate is nothing like when the Global Financial Crisis hit. Certainly not yet, anyway.

A decade ago the Rudd government not only faced a negative quarter, it was working hard to avoid a second consecutive negative quarter, which would have resulted in a technical recession.

Billions of dollars in debt inducing cash handouts later, alongside the Reserve Bank dumping interest rates by four per cent in five months, and a technical recession was avoided. But was it worth it?

Labor has done a good job at shaping the narrative that of course it was: claiming it “saved” the Australian economy, preserving hundreds of thousands of jobs which otherwise may have been on the line.

It’s ironic that Paul Keating once referred to a “recession we had to have” in the 1990s, but circa 2008/09 new Labor blew the budget to steer clear of exactly that, instead delivering a low growth quarter rather than two quarters of negative growth.

While neither side of politics would like the comparison, the political imperatives of today have parallels with the political imperatives of the Rudd years.

Politicians don’t always act in a way which is purely what’s best for the economy.

Rudd and Wayne Swan didn’t want to come to power and be accused of instantly plunging the economy into recession. Not that it would have been their fault — global factors were obviously at play. To avoid such a scenario they deliberately tolerated rising debt and a conga line of deficits.

Avoiding recession was considered necessary, accumulating debt was considered acceptable.

The Coalition might think Labor panicked. More likely, it was a calculated over-reaction.

Today Scott Morrison and Josh Frydenberg don’t want to emulate the false dawn of a budget surplus Swan eventually offered, hence they appear hell bent on delivering it even if fiscal stimulus does become a necessity. Even if it increases the risk of an economic slowdown, even a recession.

It represents a reversal of the Rudd Swan goal, but it’s equally political in nature.

Labor likes to think the Coalition is complacent. More likely, it’s a calculated decision to ensure the surplus gets delivered.

Peter van Onselen is a professor of politics at the University of Western Australia and Griffith University.