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There's one thing, politicians just can't resist when the economy goes bad

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21.06.2019

Years ago, I came to a strong conclusion: the politician who could resist the temptation to use the budget to prop up the economy when it’s falling in a heap and making voters hugely dissatisfied has yet to be born.

So let me make a fearless prediction: whatever they’re saying now, sooner or later Treasurer Josh Frydenberg and his boss Scott Morrison will use “fiscal policy” (aka the budget) to help counter the sharp slowdown in the economy that, if we’re not careful or our luck doesn’t hold, could lead to something much worse.

Illustration: Matt DavidsonCredit:

How can I be so sure? Because I’ve seen it happen so many times before. As I wrote in this column last week, since the late 1970s it’s been the international conventional wisdom among governments and their advisers that “monetary policy” (interest rates) should be the chief instrument used to stabilise the economy as it moves through the ups and downs of the business cycle, with fiscal policy focused instead on achieving “fiscal sustainability” – making sure the public debt doesn’t get too high.

Take Malcolm Fraser, for instance. He spent almost all his time as prime minister trying to eliminate the big budget deficit he inherited from the Whitlam government.

Until, that is, his advisers noticed indications of what became the recession of the early 1980s. In his last budget, he cut taxes and boosted government spending.

The Hawke government was totally committed to leaving it all to monetary policy, and stuck to that even when Treasurer John Kerin brought down........

© Brisbane Times