Saturday, November 29, 2014
Abbott also sacked Parkinson's obvious successor at Treasury, Blair Comley, for the same crime. It was a disgraceful, vindictive way to treat loyal and proficient public servants.
But Parko's departure from Treasury was delayed, first so he could help the new government prepare its first budget and then because his experience was sorely needed to help Abbott and Joe Hockey prepare to chair the G20 meeting this month.
But the time for his departure has finally arrived and this week he gave one of the last of many speeches during his distinguished career. It was a tour of the short-term and longer-term challenges and opportunities that lie ahead. He professed to be very optimistic about our prospects, but I found his remarks pretty daunting.
Starting with the rest of the world, Parkinson observed that, even this far on, the big, developed economies' recovery from the global financial crisis was slow and uneven. Forecasts for global growth next year had been downgraded again, to 3.75 per cent, following a pattern that had become familiar over the past few years, he said.
"We now have a situation where 200 million people around the world are looking for work. As the International Monetary Fund's Christine Lagarde noted, if the unemployed formed their own country, it would be the fifth-largest in the world."
The financial crisis led to rapid accumulation of public debt, and governments in many countries had neither the political support nor market tolerance to use deficit spending to stimulate their economies, he said.
In normal times, countries might use monetary policy to offset fiscal tightening, supporting demand by cutting interest rates and boosting economic activity by having their exchange rates fall. But many countries already had their interest rates at zero.
So their efforts to cut spending and raise taxes while their economies are still so weak - known as a policy of austerity - ran the risk of weakening demand further and making the budget deficit bigger.
Many countries had resorted to "quantitative easing" - metaphorically, printing money - to offset the budgetary tightening. Trouble was, we are yet to see the massive increase in funding this has generated translate into growth-inducing investment, he said. It was leading to too much financial risk-taking (buying high-priced shares and bonds) but not much economic risk-taking (increasing production capacity).
This was why our move to get each of the G20 members to agree to take measures that would cause their growth over the next five years to end up 2 per cent higher than otherwise, particularly by increased investment in infrastructure, made so much sense.
In the short-term construction phase, it adds to aggregate demand. If it's done well, it adds to the economy's supply capacity and boosts productivity for the long term. And if you price access to the infrastructure properly, it might even help the budget in the medium term.
Turning to our economy, the short-term outlook was dominated by our transition from resources investment-led growth and risks associated with continued weakness in the global economy and the potential for renewed financial instability, he said.
But our transition to broader sources of growth was occurring more slowly than we might have expected. In particular, the dollar hadn't fallen as much as expected, considering how far commodity prices had fallen, so the boost to the non-mining economy hadn't been as great as hoped.
The limited fall in the dollar was explained by the big countries' quantitative easing, which was pushing their currencies down relative to ours.
Our consumers were also cautious in their spending and businesses seemed unwilling to invest until they saw consumer spending picking up. It was looking likely the economy would have grown below trend for seven of the eight years to 2015-16.
The long-delayed return to healthy growth created a risk that cyclical (temporary) unemployment turns into structural (lasting) unemployment. However, working the other way was our moderate growth in wages, which was a sign that the labour market was adjusting flexibly, even though it was also likely to be limiting consumer spending.
Turning to our longer-term challenges and opportunities, our big opportunity arose from the shift in the centre of global economic growth to Asia. By 2050, four of the five largest economies in the world would be in our region: China, India, Japan and Indonesia.
In this decade, the number of Asian middle-class consumers would equal the number in Europe and North America. These people would increase their demand for a wide range of goods and services that we could help supply.
But if we were to grasp these opportunities, we would need to work for them, and work hard, Parkinson said. There were no grounds for complacency.
We must use the opportunity provided by all the present reviews - of the tax system, the workplace relations system, the financial markets, competition policy and the functioning of our federation - to make decisions that improve our productivity growth and position ourselves to reap the most from our prospects.
Our other big problem was achieving a more sustainable fiscal position - getting the budget back to surplus. Australia had a "structural" budget problem - that is, one that wouldn't disappear once the economy had returned to normal growth - requiring a sustained and measured response, involving people giving up benefits.
It was important we start the process of repairing the budget now, he said. We had recorded 23 years of consecutive growth and the budget projections were based on an assumption that this would continue for another decade.
Such an outcome - 33 years of uninterrupted growth - would be without precedent. Get it? We're unlikely to be that lucky.