Whoops! Today's editorial in The Australian http://www.theaustralian.com.au/news/opinion/meeting-economic-challenges/story-e6frg71x-1226235125197 was a good read with some constructive suggestions and comments about the economic outlook confronting Australia in 2012.
It is good to see a careful assessment of the risks for Australia of being too heavily dependent on growth in China and the mining boom and the need for further reform to lock in the tremendous gains in Australia over the past 30 odd years. Identifying and responding to the problems in Europe and the US will be key issues for economic policy makers this year. As the editorial says:
- "At home, Treasury and the Reserve Bank are worried about the impact of the European crisis on Australia."
The editorial quite correctly notes:
- "The economic outlook is one of continued volatility and uncertainty, highlighting the need for Australia to undertake significant reform if we are to maintain growth, jobs and high living standards."
- "we should be using our relatively strong position to identify future growth opportunities and address our weaknesses."
Three cheers for The Australian in outlining a very broad requirement for further economic reform. There is no doubt that the Government should continue to roll out meaningful economic reform after the successes delivered in 2011 but also with an eagle eye on offshore economic trends. I certainly will be one person watching the reform agenda unfold.
But then the editorial falls over. It makes this extraordinary claim that:
- "Fiscal policy must also be a priority. Rapid fiscal consolidation is necessary given the wasteful spending and loose fiscal policy of recent years, which has fluctuated from being an aid to macroeconomic policy to being its principal driver." (my emphasis)
According to the national accounts, GDP grew by 2.5% in the year to the September quarter. Within that, government demand fell 2.0%, driven by a 10.2% fall in public investment which was largely the unwind of the GFC stimulus. Government demand cut GDP by around 0.5 percentage points in that 12 month period. Australia is part way through the most rapid fiscal consolidation ever recorded.
For The Australian to suggest that Australia has "loose fiscal policy" is clearly not supported by the facts. The general call for further policy reform while entirely valid, looses something with emotive comments on "wasteful spending" and its factual error on fiscal policy. These errors do not help the debate.
That is a pity because the rest of the editorial was quite good.