Independent Fiscal Policy Redux

And so it was that when company tax revenue came a gusher with the resources boom, it mainly funded improvised giveaways rather than further reform.

But with this idea, as with so much else, the landscape is changing fast. During booms more independent fiscal policy hamstrings politicians’ natural passion for pleasing their constituents. But when downturns threaten, at least within reason, it sets those passions free! In downturns, politicians should spend more and tax less. But paradoxically they find it hard to do the right thing because voters, pundits and the markets take it for the usual expediency.

But, as government ministers compete to see how often they can say “decisive”, while dilly dallying daily around that other “d” word - “deficit” - how much easier their life might be with a respected, independent agency lending its authority to all that must be done; from reassuring the public and the markets of the appropriateness of even quite large deficits if they prove necessary, to ensuring that any fiscal stimulus is timely, temporary and well targeted. 

Oh - and getting the government’s shoulder back to the fiscal wheel once recovery proves sufficiently robust.

In the long run most commentators suggest that independent fiscal and monetary agencies be separate with some coordinating mechanisms. But, given the need for speed - and yes decisiveness - while we’re thinking all that through, the Government could make Australia and international exemplar once again with a simple letter to the Reserve Bank Governor.

Dear Glenn,
Please work with us on our fiscal strategy.
And, publish a regular report on how we’re going.
Love, Kevin

When the BCA argued for macroeconomic reform, we quoted John F Kennedy: “the time to fix the roof is when the sun is shining.” Alas, sun-drenched, we regressed to our lucky country ways. The perfect storm might do more to concentrate the mind.