When Campbell Newman declared after the last election that Queensland was the new Spain, I naturally thought, like many others, that it was just political theatre, a piece of rhetorical over-reach drawn from the Tony Abbott playbook. I had no idea he was serious.
But serious he was – and full to the brim with dire warnings of how the excesses of Christmas Past must find their reckoning in the privations of Christmas Future. Slowly, furtively, the razor was drawn from the pocket. Can Do became Must Cut – a task he has pursued with the kind of relish that would warm the stony heart of even the most parsimonious EU Commissioner.
It is not, however, a case of random “slash and hack”: Newman is more Sweeney Todd than Jack the Ripper. There is a plan; there is a process. First, Armageddon, and the purifying fire of the election: the government falls. Next, the Day of Judgement – euphemistically called the Commission of Audit – in which the full extent of our wickedness is laid bare. The government has been “reckless,” the state “profligate,” the people “self-indulgent.” We have been “spending more than we earn”, and must be punished for it. And in our midst, lurking among us, bleeding us dry, a particularly heinous criminal is identified and singled out for special treatment – the one responsible for all our woes, the most ruthless, vicious, perfidious villain of all: the public servant.
Finally, the sentence is delivered. There must be atonement, for only in sacrifice and suffering may we find redemption. The tumbrels are loaded. 14,000 in the first round…
The rise of the politics of austerity has generated a new dialectic in which the list of qualities admirable in a leader has been reduced to just one: toughness. The restoration of the fiscal position requires a “tough leader” capable of making “tough decisions” and administering “tough medicine.” Jobs are cut, services reduced, assets sold. Open wide, hold your nose, and down it goes.
But does it work? Whilst the economic commentariat remains divided (along, largely, the traditional lines of the Keynesians and neo-classicists), there is a discernible blow back against the more scarifying elements of what Treasurer Wayne Swan had called “mindless austerity.” In Spain, where it has been imposed, unemployment has risen to 27%. In the UK, where it has been embraced, public debt is now 101% of GPD. In Cyprus, where it’s reviled, people have had their savings raided. Five years after the GFC, Europe remains the dead weight in the saddle bag of the world economy.
What about Queensland, you may ask? Campbell Newman swept to power promising to rebuild what he called the four pillars of the Queensland economy: agriculture, construction, tourism, and mining. Instead, his deep cuts have emaciated confidence. His report card makes grim reading: debt is up, growth is down, unemployment is up, the credit rating is down. His response? Since cuts have so manifestly failed, the obvious solution is to announce more cuts. It’s like driving a car up a steep hill, and then half way up putting on the hand-brake.
There are a couple of problems with the Newman response. Firstly, the size of the problem was exaggerated: at less than 20% of GDP, the dystopian assessment of the State’s debt seemed crafted to validate Ronald Reagan’s famous conservative paean:
Government cannot fix the problem; Government is the problem.
Secondly, there is the manner in which the “crisis” was calculated. The traditional way of calculating debt was abandoned in favour of just looking at liabilities (which were loaded up with the borrowings of income producing, government owned, enterprises. As every high school Accountancy student learns when taught to read a balance sheet, Equity = Assets – Liabilities. Taken on this measure, Queensland’s position is transformed: instead of $80 billion in the red, we are $100 billion in the black.
Finally, there is the way public finances are thought of. We hear repeatedly the analogy to the household budget, and the media is always quick to relate any pronouncement on public debt to the” $x thousands” it represents for “every man, woman and child,” in the country – conjuring up images of midnight raids by trench-coated Treasury officials demanding that every six year old break open his piggy bank and cough up his share. It is, of course, an erroneous judgement: democratic government may be of, by and for the people, but it is not “the people.” Next time there is a surplus, try turning up to Treasury to claim your share of that.
There is also a significant difference in the way government and household budgets operate. In the household, when costs outrun revenue, it makes sense to cut them. The key, of course, is the existence of a stable, externally sourced income: wages. The government, however, sources its income from economic activity: for the states, most particularly from royalties, payroll tax, stamp duty and the GST. When austerity measures drain confidence, economic activity declines, and the state’s revenue stream dry up. Which is why Queensland’s debt situation is getting worse.
To listen to Mr Newman, it is all the fault of the previous government. Certainly, that government borrowed – at a time when Queensland was recovering from the GFC and the floods. And with those borrowings, it invested in infrastructure that developed the state’s services and economic capacity: roads, bridges, eight new hospitals, two hundred and forty kindergartens, ninety thousand new jobs, economic growth in the recovery phase approaching 5%. As Chris Richardson from Deloitte Access Economics argues, it is both financially responsible and economically prudent to borrow to build infrastructure, and pay it off over the life of the asset.
One can only imagine how deep the depression in Queensland might have been had Mr Newman been in charge a year earlier, when the joint impacts of the financial and natural disasters were at their worst. I can picture him at the front of the queue, urging the people to repent, handing out the sack cloth, doling out the bread and water. And when the bread runs out? Well, let them eat cake.
Campbell Newman’s regime of austerity has driven Queensland to the brink of recession. To Bligh’s Bob the Builder, he is Wreck-It-Ralph. He would do well, I think, to take note of the simple observation Mike Smith, CEO of the ANZ bank, made recently on the ABC’s Inside Business:
“All this austerity doesn’t work.”