he Opposition has only damaged itself by questioning, without evidence, the integrity of the Government’s chief economic adviser.
SINCE the global credit crisis began, it has been necessary to distinguish between what is happening on the sharemarket and what may be happening in the real economy. In Australia, it is now also necessary to distinguish both those things from unhelpful political heat generated about the Government’s responses to them. If it continues to be difficult to make judgements about the future course of the crisis, it is because the haze has grown thicker.
Much of that fog has been generated by the Opposition Leader, Malcolm Turnbull, relying on a report in another newspaper, which claimed that the Reserve Bank had opposed the Government’s unconditional guarantee of bank deposits. That report was comprehensively repudiated during a Senate estimates meeting this week by the Treasury secretary, Dr Ken Henry, who also denied reports of a rift between him and the Reserve Bank governor, Glenn Stevens, over the guarantee.
The emphatic nature of Dr Henry’s denials has left the
Opposition with nowhere to go on the issue, but that did not prevent Liberal senators from questioning his integrity during the estimates hearing. Nor did it perturb Mr Turnbull, who in a television
interview refused to concede that the Opposition’s line of attack had unravelled.
Too much is made of the supposed virtue of bipartisanship: it is not necessarily the case that in times of crisis the nation is best served by the Opposition throwing its support behind the Government, because the result may be the atrophying of democracy. Dissent may never be needed more than at such times. If it is to be effective, though, dissent must be based on what is known, and the antics of Mr Turnbull and his colleagues have conspicuously not been based on anything remotely resembling knowledge.
It would have been more helpful if, instead of trying to score points by insisting, without proof, that the Government was acting against the advice of the most senior economic regulators, the Opposition had pressed the Government to produce proper modelling of the likely effects of the bank guarantee. There has already been some evidence that it has led to a flight of funds from investment banks that are not included in it. That does not prove that the guarantee was unwise, because its primary aim was to prevent a loss of confidence in the system, and so far it appears to have done so. As Dr Henry told the estimates hearing, however, it was understood at the time the guarantee was announced that "there would be detail to be settled later". That detail is beginning to emerge, but the Government needs to explain just how it might be settled.
As The Age has argued before, when the crisis that is still unfolding is resolved an almost certain consequence will be that the big four trading banks will dominate Australia’s financial markets even more than they do at present. They have begun to absorb their smaller regional competitors, a process that seems unstoppable, and now, for good reasons, the taxpayer is securing their business further by guaranteeing the deposits they hold.
One question that arises is what the taxpayer receives in return. In the US and Britain, bank guarantees have been accompanied by the government taking equity in some of the institutions benefitting from the guarantees. Given that none of Australia’s banks is in as parlous a state as those institutions, it would not be appropriate for the Government to take a direct stake in them. Nonetheless, the banks have incurred a moral debt to the Australian people through the protective guarantee they have received, and if they find themselves more closely regulated in future they should not be surprised if many Australians regard that as a condition for discharging the debt.
The other question the Opposition was ignoring while it pursued Dr Henry was whether the dizzying rises and falls in the sharemarket are becoming a better indication of what is happening in the real economy of jobs and goods and services. Yesterday’s fall in the value of resources stocks is consistent with the approach of a global recession, which raises again the question The Age asked when the Government revealed its $10.4 billion plan to stimulate the economy. Increasing spending without also fostering real growth is a recipe for stagflation, and to avoid that spectre the Government must turn its attention to infrastructure projects that do not take many years to generate an economic return for the nation.