The Hon Peter Costello MP

Remarks to Quadrant Dinner, 20 October 2008

Last Friday Peter Hartcher of the Sydney Morning Herald told us it was in late March, at a meeting with the Managing Director of the IMF in Washington, that Kevin Rudd became alarmed about the gathering economic crisis.  “Fearing the effects on the world economy, Rudd decided to prepare an economic stimulus package for Australia.  He and Swan began canvassing specific ideas with their officials”.

Laurie Oakes told us on Saturday in News Ltd papers how Wayne Swan, sitting in a car in pouring rain in January took a call from US Treasury Secretary Hank Paulson who wanted to warn him of the dangers in American financial institutions.  This explains how according to Oakes “An economic stimulus plan was already on the blocks.  As they became increasingly alarmed at what was happening overseas, Rudd and Swan had been working on it, just in case”.

The thing we can confidently say as a result of the co-ordinated media spin over the weekend is that the Government is briefing journalists that it has been working up an economic stimulus plan since January or perhaps March.  We are invited to believe that we should be grateful that the Government saw this economic downturn and drew up plans for a fiscal stimulus to meet it.

Unfortunately the facts rather get in the way of this nice piece of spin.  The first fact is the May Budget.

The Budget was brought down on 13 May 2008, apparently after the Government had realised there was need for an economic stimulus.  But there was no mention of the need for stimulus in the Budget.

The Government was in a different spin cycle then.  It was trying to attack the Coalition over inflation and claiming Australia needed not spending stimulus but severe spending cuts.  The Budget speech claimed: “The Government has made sure every single cent of new spending for the current year has been more than met by savings elsewhere…difficult spending cuts have helped fund our working families support package…we are budgeting for a surplus of 1.8 per cent of GDP…it is a surplus built on substantial savings of $33 billion over four years…and it is a surplus built on disciplined spending with the lowest real increase in Government spending in nearly a decade…”

Regardless of whether these claims were true or not the whole focus of the May Budget was to cut spending.  Take your mind back to May.  The Government was “shocked” by inflation. 

Mr Rudd in Parliament on 3 June 2008: “…we need to put downward pressure on interest rates and that means putting downward pressure on inflation.  The Government in January of this year was clear cut about its five point strategy for dealing with inflation: one to bring about an appropriate discipline when it comes to public demand, through generating a significant Budget surplus.”

Even as late as his Ministerial Statement of 4 September 2008 Wayne Swan was telling the House: “…we identified the magnitude of the inflation challenge and dedicated ourselves to addressing it”  “…it was imperative that we abruptly change Australia’s fiscal direction, move away from the reckless spending of our predecessors in their last desperate years of office and change to a consistent disciplined stance that would help rather than hinder the efforts of the Reserve Bank to bear down on inflation”.

What a surprise that all the time Labor was promising big spending cuts to wage a war on inflation they were secretly working up a fiscal stimulus package!  Indeed inflation is higher today than it was in December of 2007 but the inflation challenge has disappeared from Labor rhetoric.  Cutting spending has disappeared with an out of Budget spend of $10 billion between now and Christmas. 

It would be fair to say the Government has changed policy.  It would be fair to say that now it has a real challenge it doesn’t have to spin the inflation issue.

But the spin has not stopped – just changed to a different line.  Labor now wants people to believe that it has been preparing a fiscal stimulus since the beginning of the year.  No it didn’t underestimate the fallout from the sub-prime crisis it just fooled us all by telling us the Government needed to cut spending when in fact it was preparing to increase it.

Or maybe journalists are having their legs pulled.  Journalists, hopefully, will get sick of that before too long.