All Tip and No Iceberg: Ceremonial Economics in Australia

What is something ceremonial? Shiny objects like orbs, crowns and sceptres? Or grand and powerful characters such as the Governor-General, the Pope or the Queen? They are highly revered, and beautiful to look at. However, too close a step can offer a glimpse beyond the façade and reveal the idleness beneath the surface. The power of ceremony is that it can distort the true meaning of things with fancy rhetoric and hyperbole. The Imperial Crown of the United Kingdom, while beautiful and famous, is still an object. The Pope, while admired and worshipped, is still human. 

 

Ceremony is also present in our politics and economics. Over the past 40 years, countless governments and oppositions have coated simple phenomena and concepts in spin and hyperbole to distort their meanings for personal benefit. They have created ceremonial economics in order to sell political narratives to voters for political gain. 

 

Today, Prime Minister Scott Morrison’s surplus is the best example of ceremonial economics. If, as the Liberal government has promised since they were  elected in 2013, there is a return to surplus this year, it will not mean what the government wants us to believe it means. Morrison will spin it as a return to the predictable and prosperous fiscal discipline of the ‘Howard years’, and as an indication of a healthy and rot-free economy. It will be presented as a sign of economic and political success that belies its actual significance and implications. A budget surplus now has a conferred ceremonial power which alters its true meaning. 

 

The creation of ceremonial economics has had alarming effects on our politics and public discourse. As the state of the economy and fiscal management are key concerns of Australian voters, real political outcomes are decided on the basis of distorted meanings and ceremony, while meaningful substance is neglected. 

 

Since Morrison came to power in 2018, he and his treasurer have emphasised the government’s determination to return the federal budget to surplus in the 2020 to 2021 financial year. In the 2019 federal budget, the centrepiece of Josh Frydenberg’s speech was restoring ‘fiscal discipline’, announcing that Australia’s gross national debt had steadily decreased, and that there would be an $11 billion surplus in the coming year.

 

Federal budgets, while officially a statement to the public about the state of the national accounts, are always political. The return to surplus was qualified with the assertion that ‘only one side of politics can do this’, with a casual reference to former Prime Minister John Howard and former Treasurer Peter Costello’s paying off Labor’s ‘debt’. Neither in the speech, nor in the election material that followed, was there any exploration of what paying off Labor’s debt would mean for voters. Instead, the Coalition used the misleading ‘surplus’ to convince voters that it had saved the Australian economy. And it worked. They won the ‘unwinnable’ election, and proved that in elections, economic management is always supreme. 

 

Despite this victory, and the surplus we will no doubt see within in the next three years, the Australian economy continues to sputter, one painful limp at a time. In October of last year, the International Monetary Fund (IMF) predicted that the economy had grown just 1.7 per cent in 2019, and would only grow by 2.3 per cent in 2020. This was before the catastrophic bushfires that have devastated much of NSW and Victoria. This makes 2019 the worst year for the Australian economy since the Global Financial Crisis 11 years ago. Given that a healthy growth rate is considered to be between two per cent and four per cent, there is considerable cause for concern. 

 

The government has reassured people that despite ‘economic headwinds’ the ‘fundamentals’ of the economy are strong. What these fundamentals are, if wages are stagnant, trade tensions are rising, and interest rates are dangerously low, is unclear. A budget surplus in the near future will not solve these problems. At a time when the Governor of the Reserve Bank has pleaded with the government to spend to stimulate the economy and prevent recession, a manufactured surplus might be the last thing we need. In fact, it will be window dressing, the much anticipated delivery of a political promise made in 2013. The Coalition will use it as evidence of their prudent economic management and remind the electorate of how long it took to clean up ‘Labor’s mess’. This is despite the threats that Australia faces and the deep structural imbalance of our economy. 

 

The $11 billion question is why, at a time of great economic uncertainty, is this surplus, the result of inaction and political points-scoring, so celebrated? Why isn’t it seen for what it is? Why is it all tip and no iceberg?

 

The answer is, ceremony. For decades both sides of politics have painted one another as incompetent economic managers, and pronounced themselves as the only party that can be trusted with the economy. This has led to 40 years of spin and ritual. Simple economic phenomena have been dressed up so much that their significance has become distorted and their meaning malleable, if not broken altogether. Through endless attacks, rhetoric, and tricks, a lack of fiscal discipline has become deadly in Australian politics. Politicians have conferred a type of nominal power on economics, resulting in its purely ceremonial meaning. 

 

In 1975, former Prime Minister Gough Whitlam and his government, the first Labor administration in over 20 years, werewas removed from office in a crushing electoral defeat after just three years. Despite their sweeping social reforms, the Whitlam government was plagued by chaos and economic mismanagement. The Coalition argued that Labor had failed to control inflation, led the country into an oil crisis, and induced a recession. This, compounded with the many scandals of the Whitlam administration, was enough to remove Labor from office. The failures of the Whitlam government became the foundation of a narrative that economic mismanagement is always linked to internal chaos and instability. 

 

In 1983, the newly-elected Hawke government turned the tables on the Coalition by publicly revealing that the deficit left by former Prime Minister Malcolm Fraser was $3 billion larger than what was stated during the campaign. This deficit of $9.6 billion (around $31 billion in today’s dollars) meant that the incoming government would have to cut most of its spending plans for its first term. The blame was used to paint the outgoing government as fiscally incompetent, unbalanced, and untrustworthy. This cycle was repeated in 1996 when John Howard inherited a $14 billion deficit (roughly $24 billion in today’s dollars), which was significantly larger than expected. Howard also came into office with the national debt approaching 20% of GDP, the highest level since Whitlam. 

 

In both these cases, highly unpopular governments were swept from power in dramatic fashion. Fraser in 1983 and former Prime Minister Paul Keating in 1996 were both vehemently disliked, and avoided answering questions about the deficit and the net debt accumulated during their time in office. In both cases, fiscal mismanagement was linked to untrustworthy, unpopular, and chaotic administrations. 

 

Conversely, Howard was able to marry economic prosperity, rising wages, and low inflation to surplus after surplus. After the 1997 to 1998 budget, all but one of Peter Costello’s next nine budgets were in surplus. Howard and Costello won four successive terms and governed for over 11 years. In the minds of the electorate, stability and general wellbeing went hand-in-hand with a balanced budget.

 

A crucial element of Labor’s successful campaign in 2007 was painting themselves as ‘economic conservatives’ who would not spend big as Whitlam and Keating did, but would follow Howard’s prudent fiscal management. However, Labor was forced to erase Australia’s budget surplus, and spend to avoid a potential recession brought on by the Global Financial Crisis. Despite the fact that Rudd’s policies likely prevented a recession, the opposition used this to convince the public that Labor could not manage the economy. This was not helped by the instability that plagued Labor from 2010 onwards: a minority government, a midnight coup, and spill after spill followed by deficit after deficit. Once again, economic mismanagement followed chaos and instability. 

 

Whitlam proved that governments live and die on their management of the economy. Hawke tied together unpopularity, failure, and untrustworthiness with a massive budget deficit. Howard married political stability and economic prosperity with unbroken rivers of gold flowing from the treasury. As the Rudd/Gillard government ate itself alive, the public again saw headline after headline about a rotten budget and a sky-rocketing national debt. Gradually, the meanings of economic terms hadwere been eroded, and all that remained was their raw political value. Because a surplus must be good and a deficit must be bad, their significance is lost. Instead, the budget is smothered in ceremony as complex economics are reduced to ritual talking points on breakfast television programs Sunrise and Today. Both sides of politics have used the state of the federal budget to attack each other and promote themselves, to the point where a surplus has become the jewel in the crown of competent economic management. Like a crown, when removed from ceremony, it becomes irrelevant.

 

The problem is that the state of the budget is so much more than just a shiny object. The finer, but more important, implications of budgets and economic phenomena are so often lost in political noise. 

 

As the last four decades have made the national accounts purely ceremonial, the government is chasing a budget surplus to try and once again marry a balanced budget with prudent economic management. However, a political, at-all-costs surplus is the last thing the Australian economy needs. All signs point to a global slowdown and stagnant growth in the very near future. A recession is more than possible. Interest rates are at historic lows, and monetary policy has run out of room. If the government continues to chase a surplus it will be unable to stimulate the economy, resulting in a recession for the first time in 25 years, rising unemployment, falling revenues, and years of recovery. It would be a surplus that Australia could not afford.

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