September 30, 2015

Competence is not enough

By Jamie Hall
Competence is not enough
What can we expect from Scott Morrison as treasurer?

Scott Morrison is a formidable politician, a leading contender to replace Tony Abbott, and perhaps the anointed successor to Malcolm Turnbull. But Treasury is hardly an easy stepping-stone to the Lodge. Of the 38 treasurers before Morrison, only six went on to be prime minister. The portfolio is complex, technically demanding, and affected by short-term economic conditions that are out of the treasurer’s direct control. What can we say about how Morrison’s tenure is likely to go?

Morrison doesn’t have a strong background in economics, or much training in it. But history suggests that isn’t such a problem. The only treasurer with an economics PhD was the disastrous Jim Cairns, whereas Paul Keating and Arthur Fadden, arguably the two best so far, both learned on the job. Still, I wouldn’t bet that this will be Morrison’s strong point.

As treasurer to Menzies for more than seven years, Harold Holt proved that you don’t need technical skill if you’re lucky enough to find yourself in a benign and calm situation. He snoozed through the early 1960s – Treasury’s official account calls him “amiable and diligent” – the only hiccup occurring when he accidentally crashed the economy with an austerity budget in 1961, before swerving back with an ad hoc stimulus package a few months later.

But it doesn’t seem likely that Morrison will be able to leave the budget on cruise control. Unemployment is uncomfortably high, the mining boom is unwinding, and our trading partners are struggling to recover from the GFC. And in difficult conditions, a treasurer’s lack of skill can be painfully exposed. John Kerin is famous for ending a successful ministerial career with a humiliating failure at Treasury. He always appeared bewildered by the details of the portfolio. John Hewson set the agenda from opposition and Kerin struggled to formulate a response, while Paul Keating sat on the backbench like Achilles in his tent.

I was surprised to learn from Laura Tingle’s Chasing the Future that Kerin started off brimming with confidence. He had a good university degree in Agricultural Economics and thought he’d master the portfolio easily. Perhaps that’s the most salient lesson from history for the new treasurer, who is currently being bombarded with puff pieces describing his mental acuity.

In any case, a fair-to-middling treasurer can negotiate a tricky patch, provided they can rely on high-quality advice from Treasury. Left to his own devices, Peter Costello would have failed Macro 1. But Ken Henry was secretary of the Treasury for most of Costello’s time, and he has enough economic skill for two people.

Unfortunately for Morrison, the current secretary of the Treasury seems unusually mediocre. Based on his public speeches, it looks like John Fraser is struggling to figure out what he’s supposed to do. After one effort earlier this year, Crikey’s correspondents laughed that it was the best economic speech of 1993. A long interview in last week’s Financial Review only added to this picture. One gets the distinct impression of a hard-charging investment banker who hasn’t had to think seriously about economic policy for more than two decades.

Based on all that, I think there are three possible scenarios. I reckon there’s maybe a 10% chance that Morrison surprises us all by becoming a skilled and commanding treasurer, and another 10% chance that he spectacularly crashes and burns. The most likely outcome is that he competently executes an agenda set out by the PM’s office.

In media appearances so far, Morrison hasn’t given much indication which path he’ll follow. Apart from repeating the phrase “work, save and invest” too often – an uncomfortable reminder of the former PM’s mania for three-word slogans – Morrison handled himself well, avoiding making any firm commitments while talking earnestly about the need to rein in government spending, as any new treasurer does.

In the absence of any concrete policy announcements so far, what can we say about what the Morrison–Turnbull agenda is likely to consist of? At a guess, it would include some tinkering with GST arrangements: broadening the base a bit, nudging the rate up. Also, I wouldn't be surprised by some adjustment of income taxes to reward the wealthy a little bit more, which we’ll call “incentivising agile and dynamic small businesses”. This would be a perfectly respectable and serious policy agenda. Paul Kelly will love it.

But it would be terrible for the country. Beyond the short-term weakness in the labour market, the main problems we’re facing are not related to technical economics. They’re subtler, more nebulous. To raise our productivity growth, everyone agrees we need to become innovative, dynamic, confident, and creative. But there are no macroeconomic controls that you can adjust to make that happen. We need a treasurer and a PM who are confident enough in the economic fundamentals that they can go beyond them, into largely uncharted territory.

Every year we spend futzing around with tax rates and IR changes is another year stuck in the mud. Morrison might have the policy and economic skill to deliver on the new PM’s big talk about “economic leadership”. But if Turnbull appointed him largely for political reasons, they could both live to regret it.

Jamie Hall
Jamie Hall is a data scientist and former Reserve Bank modeller. @jamie_hall

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