Let budget surplus go, Paul Keating urges Scott Morrison

Paul Keating has urged the ­Morrison government to loosen fiscal policy to stimulate the ­economy through infrastructure investment and vocational education and training.

Former prime minister Paul Keating says the current quest for a surplus should not be regarded as ­sacrosanct. Picture: AAP

Paul Keating has urged the ­Morrison government to loosen fiscal policy to stimulate the ­economy through an ambitious productivity-enhancing infrastructure investment program and turbocharging vocational education and training.

In an exclusive interview with The Weekend Australian to mark 50 years since his election to parliament, the former treasurer (1983-91) and prime minister (1991-96) declared monetary policy had “run its race’’.

Mr Keating, who delivered four budget surpluses as treasurer, said the current quest for a surplus should not be regarded as ­sacrosanct.

“Monetary policy has run its race,” he said. “There is no more that central banks can do. Even if the Reserve Bank of Australia moved into the Australian version of quantitative easing, the impact would be so economically marginal as to be not worth doing.

“We are moving into a new world of big government after 30 or 40 years of smaller government because, with world growth shrinking and monetary policy being incapable of providing the stimulus, the building of infrastructure both by governments and by private industry, perhaps acting in concert, is the way ­forward.”

Mr Keating said the government went to the election with the massive lie that “we are running a strong economy”.

“The national accounts told us months later it was growing at 1.4 per cent — half our average rate of growth over the last 30 years,” he said.

“This is not a record one would boast about. The case for fiscal expansion is simply staring you in the face. The accounts of a nation are not like a household account — they don’t have to run in surplus because a nation can tax and can grow. So fiscal policy today is not stimulatory enough and needs to be made much more stimulatory, rapidly.”

Mr Keating’s comments on the limits of monetary policy are in accord with the views of former Reserve Bank governor Ian Macfarlane, who told The Weekend Australian in October that the central bank had reached the limits of its ability to boost the economy through interest rate cuts and further reductions would have “very little power to do anything useful’’.

Mr Keating said because the cost of borrowing was at such low levels, a bold new infrastructure program that would stimulate the economy was needed.

“What changed America in its halcyon years was not financial capitalism but the great government programs, like president Dwight D. Eisenhower’s 1950s ­interstate highway system which laid down 41,000 miles of highways and opened up the American suburbs on which, of course, the products of Detroit rolled on,” he said.

“In the important world of deregulation from the 1980s, taken to excesses in the noughties, the benefits of deregulation have been abused by financial engineers aided and abetted by unconventional monetary easing taking big increments of national income to an exceptionally small part of the community. What we need to do now, particularly given the limits of monetary policy, is to reap the benefits of low interest rates with a government capital program funded on these preferential terms. To not do so is to turn one’s back on one of the rare opportunities in history of making an ­Eisenhower-type turn.”

He said because people were more globally connected, the economy and society were more horizontal and collaborative but more needed to be done to equip younger generations to make the most of the opportunities of the digital economy.

Mr Keating, who introduced compulsory superannuation, also urged the government to commit to the planned increase in the super guarantee from 9.5 per cent of wages to 12 per cent by 2025, but he fears the government will not increase the guarantee beyond the scheduled increase to 10 per cent in 2021.

“If you join the workforce at 25 and you retired at 65, 80 per cent of the ­savings pool will be from earnings and only 20 per cent will be from contributions. If you don’t allow super to continue to ­compound the earnings on earnings, you rob the super­annuant of 80 per cent of the ­accumulation.”

Mr Keating said the $2.9 trillion accumulation had delivered pro-rata savings of $230,000 for each of Australia’s 12.9 million workers, but was being undermined by The Australian Financial Review and The Grattan Institute, and by ­Coalition MPs happy to have the government contribute 15.4 per cent of their income into their superannuation accounts.

“The Australian Financial Review, which runs a right-wing agenda on wages and economic policy, and The Grattan Institute, which runs broadly a left-wing agenda, have come together to try to stop super going to 12 per cent, which will force people back on to the age pension,” he said. “So I say: what do you expect super to do? It has put $230,000 in each of its accounts, it has wiped out the current account deficit, it has lowered the cost of capital. Would you like it to polish your shoes and clean out your toilet basin? What else is it supposed to do?”