In 2008, when the full impact of the GFC became apparent to the then Secretary to the Department of the Treasury, Ken Henry, his advice to prime minister, Kevin Rudd was, “Go early, Go hard, Go households.” Rudd didn’t equivocate. A $40 billion stimulus package that put money into the bank accounts of all taxpayers was devised, approved by cabinet and executed without delay.
The rest is history. Australia was the only western economy that did not go into a subsequent recession. It was a fortuitous and brave piece of advice that meant issuing debt when the nation had been convinced that being debt free was a good thing.
At the time, the nation had been seduced by the power of the dark side….the Liberal opposition. They detested debt having no idea how important it was to maintain economic activity during times of instability on world financial markets.
Dr Nicholas Gruen, chief executive of Lateral Economics wrote at the time, “the 1991 recession shows that what the Australian economy needs now is stimuli, not timidity in the face of a possible electoral backlash for an irresponsible government deficit.”
The Liberal opposition at the time were a timid lot. They didn’t have John Howard to steady them. They had Malcolm Turnbull at the helm. They were like a tall ship on rough seas without a captain to guide them. They were arguing for caution. All they cared about was retaining their precious debt free legacy.
Fast forward to June 2016 and Brexit. The United Kingdom has voted to leave the European Union and that has sent shivers through the world’s financial markets. $50 billion was quickly wiped off the Australian stock market in a frenzy of panic selling by greedy, money hungry investors who saw the possibility of losing their money if they didn’t act quickly.
Putting aside the reasons a majority of British citizens chose to leave, it is the greed and distrust in the investor market that now takes centre stage. Markets rise and fall on fear. Some might say, “who cares, it’s not my problem.”
But with so much money now invested in superannuation funds, money entrusted to those funds by ordinary, average working Australians, we do have cause to worry because superannuation funds invest in world markets.
Another stock market collapse ignited by the Brexit decision would impact negatively on those superannuation funds. That would set off a chain reaction beginning with further household restraint, lower retail sales creating excess stock levels, cutbacks in production and workers being laid off. We have seen it all before.
Who, under those circumstances, would trust a Liberal government to execute an economic package to stimulate a receding economy? They were too timid to support the Labor government during the GFC, it is reasonable to think they would act the same way this time around.
That is why Labor should be the beneficiary of the Brexit decision at next week’s election. They saved the country from a recession after the GFC, they guaranteed personal bank deposits and settled fears of what might happen on the stock market.
The present government will not act that way when push comes to shove. They will not go early, go hard or go households. They cannot be trusted to act in the best interests of the average Australian family. Their loyalties lie elsewhere.
No doubt the conservative forces are meeting right now to develop a strategy to convince Australians Labor cannot manage this looming crisis. But the truth is, the Liberal party has already proved to us that it cannot and will not manage this potential crisis in a way that protects the average Australian worker and his family. Only Labor can be trusted to do that.