No Australian bureaucrat is as influential – intellectually as well as politically – as the Secretary of the Treasury.
Under the Rudd government Ken Henry was a de facto minister. And think of John Stone, Sir Frederick Wheeler, Sir Roland Wilson. Every word they said was a synonym for authority.
So we probably should have all paid more attention to the new Treasury Secretary’s political debut last week.
Especially considering that, ultimately, the Abbott Government will live or die on the performance of its next budget – something the secretary is responsible for designing.
John Fraser, a former asset manager and public servant, became Treasury Secretary in January this year. On Wednesday he had his first appearance at Senate estimates and on Friday he gave his first major speech, to the Committee for Economic Development of Australia.
What he said was significant. Let’s start with his approach to stimulus – particularly important given rumours and reports of a need to prop up the economy with some government spending in 2015.
You probably remember that at the height of the Global Financial Crisis Ken Henry came up with a simple slogan for Labor’s enormous stimulus package: “Go hard, go early, go households.”
At estimates last Wednesday, John Fraser had an entirely different perspective on radical stimulus: “I approach fiscal stimulus in whatever circumstances with a great deal of care.”
While he declined to directly criticise the previous government’s damn the torpedos! approach, Fraser wondered aloud about the economic models that justified fiscal stimulus decisions.
And he argued that the decision to stimulate had to take into account the productive capacity of the economy. This is a subtle point, but it is one that indicates that the secretary might want to shift focus from the demand side of the economic equation to the supply side.
Ken Henry’s stimulus advocacy was the result of a shift in thinking within Treasury that had begun in a series of secret workshops in 2004.
So the question is whether John Fraser’s comments will represent a shift the other direction: away from Keynesian demand management and towards a focus on production and supply.
If so, then we’re in for some interesting times.
In December I pointed out that Joe Hockey’s rhetoric had taken a very Keynesian turn. The budget is now seen as a “shock absorber” for the economy. Hockey’s been saying that the economy is far too weak for any substantial cuts to the budget – and playing down any return to surplus any time soon.
Fraser seems by disposition and argument unsympathetic to this sort of orthodox crude-Keynesianism. In his Friday speech he said repairing the budget was “an immediate priority”.
He rejected the idea that the economy could grow the budget back to surplus in the short term – the policy settings had to be changed. He told estimates that “I do not like public debt”.
He made it clear that the budget’s problem is just as much on the expenditure side as the revenue side.
In fact, he praised Ronald Reagan’s tax cuts for having “helped to reinforce the entrepreneurial spirit” of the United States. (Although he was less complimentary about Reagan’s overall fiscal position.)
And finally he rejected the International Monetary Fund’s claims that “austerity” had done more damage than good, by pointing out that the IMF had no monopoly on good advice.
You might say these claims would be very amenable to the Government. After all, the 2014 budget was in theory all about cutting expenditure, and Tony Abbott has long said he wants to deliver tax cuts by the end of his first term.
But Abbott and his Treasurer have been backing away from the small government fiscal policy Fraser advocated last week.
At the National Press Club last month the Prime Minister said that “because we have done much of the hard work already, we won’t need to protect the Commonwealth budget at the expense of the household budget.”
Social Services Minister Scott Morrison is apparently seeking more funds for social services like childcare from the budget. It’s all very Howard-era middle class welfare.
And those promised tax cuts are reportedly off the table, according to the Australian Financial Review.
This makes Fraser’s staunch defence of the Government’s previous agenda very important. What would Reagan say to the Great Budget Backdown?
Under Fraser’s supervision, the 2015 federal budget could look very different to what it might have looked like under previous Treasury management.
Because the Treasury view of the world matters.
The department has a reputation for both stubbornness and intellectual dominance of the political agenda. Patrick Weller once wrote of Treasury:
Giving the advice it considers to be correct, regardless of the known policy preferences of minister, indeed, sometimes sticking to those views long after an alternative strategy has been adopted by a government.
Elected politicians have fought for and against the so-called “Treasury line” since the department came into prominence in the 1930s.
Right now, the Abbott Government is understandably gun-shy. But with a deteriorating economy, it’s not clear they can afford to be.
It looked like the Abbott Government was all set for a status quo budget that abandoned the project of fiscal repair. Here’s hoping Fraser can be a strong force against reform lethargy.