16 January 2021
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Devastating UBS critique of Howard/Costello fiscal policy

Christopher Joye
18 May 2011

In one of its latest reports, UBS's team of economists has cast into sharp relief the fiscal complacency of the Howard/Costello years. And the analysis is remarkable.

Spending measures under Howard/Costello summed to 4.5 per cent of GDP, which was more than the Rudd Government's fiscal response to the GFC. Check out the chart immediately below comparing the relative size of the Coalition and ALP's cumulative spending announcements. The grey bars are initiatives announced by Howard/Costello. Oh deary me. The ALP should run this little beauty in their 2013 election ads …


Cutting to the chase, UBS's economists conclude that fiscal policy was less parsimonious under Howard/Costello compared with Rudd/Gillard, and the overall approach less credible:

“[I]n the three years to 2005/06 – through the first phase of the current commodity boom – real government expenditure averaged four per cent per year (above real GDP growth of 3.4 per cent) as tax revenue surged eight per cent per year. Nominal outlays growth through this period averaged seven per cent. As the second phase of the mining boom gets underway, in the current year, outlays are expected to have been up a real 0.5 per cent, and forecast to average about one per cent per year over the coming few years, well below the three to four per cent per year during the first phase of the recent boom.

“Of course, this follows a period during the GFC where outlays were rising at an historic pace, so arguably delivering spending restraint from a now higher base should not be that difficult. However, while the size (and content) of the fiscal easing during the GFC is open to question, the notion that this was directionally appropriate ‘countercyclical fiscal policy’ is not.

“Fiscal policy was eased during a period of rising unemployment and falling confidence and activity. This contrasts the first phase of the commodity upswing, when spending measures accumulate to a stunning 4.5 per cent of GDP stimulus by 2007/08 (well above the current government’s GFC response), as the unemployment rate was falling and private real domestic demand was accelerating from four to eight per cent, sharply above trend.”

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