Humphreys, J. (2012), “The Treasury’s Non-modelling of the Stimulus“, Agenda, 19:2, Australian National University, Canberra, pp39-51.
In late 2008 the global financial crisis (GFC) sparked a boom in Keynesian economic commentary and activist fiscal policies. The Australian government responded with an immediate $10.4 billion ‘cash-splash’ to households (Commonwealth Treasury 2008), followed by a $42 billion ‘Nation Building and Jobs Plan’, which was to include $12.7 billion more hand-outs as well as a $28.8 billion increase in government capital investment. In total, the government ‘stimulus’ was estimated to be about $52 billion. If we included all discretionary government spending that happened after the GFC then the number would be far higher.
And as it happened, Australia came through the GFC without much trouble. While the GDP/capita did shrink by 0.8 per cent in 2008/09, this was hardly noticed since the government and most media failed to discuss the per-capita statistics and instead reported that total GDP grew by 1.4 per cent. However you report it though, Australia did better than many other countries.
The proponents of the Keynesian policies and the politicians and bureaucrats who implemented them were quick to claim success. The American micro-economist Joseph Stiglitz said of Australia: ‘What your government did was exactly right’. Our Treasurer, Wayne Swan, proudly claimed ‘rapid fiscal stimulus measures shielded our economy and jobs from the worst consequences of the global financial crisis’ (Swan 2010).
In part, these glowing reports are based on modelling done by the Commonwealth Treasury, which is often treated by the media as the gold-standard of economic advice in Australia. The government says that Treasury modelling shows thousands of jobs saved and billions in extra tax revenue (Peatling 2009), and Keynesian commentators have used Treasury as their evidence to justify the stimulus.
It is therefore alarming that Treasury never released any proper modelling of the stimulus package. The best it offered was a short note outlining the methodology for their budget forecasts (Treasury 2009), which will be discussed below.
John Humphreys 