Mr Hockey's Speech - More Holes than Swiss Cheese

Shadow Treasurer Joe Hockey gave a speech to the Sydney Business Chamber and while the sentiment in the speech surrounding strong growth, low taxes and job creation was sound, it was riddled with factual errors and a misrepresentation of some facts.

I have not seen any media coverage of the errors – the speech seems to be been taken at face value – but below is an analysis of some of Mr Hockey’s comments,  with my comments in the square brackets.

• “since 2007 the ratio of net debt to GDP of the leading western economies has grown from 52% to 82%”  [That is a swing of 30% of GDP; in Australia, net debt to GDP has grown from minus 3.8% to 8.9%, a swing of 13% of GDP.]

• “Sovereign risk was never an issue before but since the election of Labor in 2007 analysts have added it into the Australia equation”.  [Sovereign risk is difficult to determine but on two important measures, sovereign credit ratings and government bond yields, sovereign risk has fallen.  For the first time ever, Australia has a triple-A credit rating from all three major ratings agencies and the 10 year government bond yield is now around 4.0% having recent hit an all time low of 3.65% - it was above 6% in late 2007 when the Coalition was in office.]

• “if the Labor Party does manage to deliver a surplus next year it will not be based on a significant reduction in the size of Government but rather, it will be based on a massive increase in tax receipts for the Commonwealth.”  [Factually wrong.  The size of government – taken as government spending – will fall from 26.0% of GDP in 2009-10 to 23.6% of GDP in 2012-13.  As a memo item, the Howard government’s average government spending to GDP ratio was 24.2% of GDP.  The tax to GDP ratio will rise from a 30 year low of 20.0% of GDP in 2010-11 and will reach 22.3% of GDP in 2012-13.  As a further memo item, the tax to GDP ratio in the last Howard year was 23.7% and the average tax to GDP ratio under Howard was 23.4% of GDP.]

• “we will achieve a surplus in our first year of office and we will achieve a cash surplus in every year in our first term”.  [Assuming a late 2013 election, this is promising what the current government is already going to deliver.]

• “Under the Coalition the budget will not be the first lever pulled in the event of another downturn.  I would prefer to see greater use of monetary policy for managing demand, with movements in interest rates used to smooth the economic cycle…. I would prefer to see monetary policy used as the primary tool for managing demand. ”  [This hints at undermining more than two decades of bipartisan support for the RBA to set interest rates independently of government.  This is a very dangerous path to follow and would see international investor take fright at the prospect of political interference in the RBA and implicitly, in the inflation target.]

• “Australia should ideally be running very large budget surpluses.  This would allow money to be put aside for a rainy day.”  [There is an inconsistency in Mr Hockey’s approach.  Putting money aside “for a rainy day” suggests that the Coalition would be willing to run down surpluses if there was a shock to the economy – I thought he said they’d prefer the RBA to cut interest rates?] 

• “The second step in the Coalition plan for a stronger economy is to reduce the overall burden of taxation.”  [This is an interesting issues touched on here … http://alturl.com/iib8h ] 

• “A number of private sector commentators now believe the inflationary impacts of the carbon tax will be higher than the government has said.”  [Mr Hockey provides sources for many items in his speech but not this.  Who says this?]