Why a modern legal education should examine constraints on the Commonwealth’s spending power

Mainstream critical legal education in Australia gives little attention to enactments and case law regulating the Commonwealth’s constitutional power to appropriate (s 81) and spend money (s 83). This neglect has several causes, including a shallow knowledge base. Few legal scholars have engaged with reforms aimed at increasing the public administration of government spending, much less criticised their effects on Parliament’s spending powers. One exception is Professor Charles Lawson, who argues such reforms have undermined Parliament’s constitutional authority.

The Charter of Budget Honesty Act 1998 (Cth) (CoBHA) is a reform in point. It imposes guiderails around the Commonwealth’s constitutional spending (‘budgeting’) powers by introducing ‘principles of sound fiscal management.’ On first view, these principles seem commendable: they make government more transparent about fiscal strategy and seem broad enough to permit diverse governments to develop divergent economic policies. But the substance of these principles (including what they omit) reflects a bias towards orthodox neoclassical economic theory (eg, pro-austerity fiscal policy) and against the emergent insights of heterodox economic theory (eg, the sectoral balances approach).

Given the central role government expenditure plays in our daily lives (eg, Medicare, the NDIS) and the importance of political economics to Australian electors, a modern legal education should familiarise students with laws that may constrain or even undermine Parliament’s constitutional power to spend money (such as CoBHA), together with related case law. I contend that both constitutional law and administrative law are Priestley 11 subjects well placed to highlight these tensions in political economy and law.

On Bernie Fraser’s avowed dispreference for academic review of the RBA

This post is a provisional opinion. It is expressed in a moment in time and does not represent the view of my employer, is not legal advice, and is not offered as a scholarly contribution.

Bernie Fraser says he’d rather ACTU Secretary Sally McManus be appointed to review the RBA than an ‘academic pontificating on things.’ Surely that’s a stir-up. Indeed, to my ears, it’s quasi-Trumpian. What’s he worried an academic economist would say?

Almost three-quarters of the economics academics in Australia seem to me to be orthodox neoliberals, and those who are not (and eminent enough to be considered), such as Profs Bill Mitchell and Steven Keen, are exactly what we need right now.

We need fresh thinking in economics. Specifically, we need to think differently about sectoral balances. Everyone is so worried about government debt in Australia, but government debt is only 40% of our GDP while our household debt is three times that amount: a massive 120% GDP — the second highest in the world (by far).

What’s the point of shrinking government debt through fiscal contraction if we are all just getting more and more indebted to the banks? Million-dollar mortgages are not normal in other economies. They may be common, but they’re not pervasive and normative like they are here. Household debt to GDP in the UK IS 87%; in the US is 78%; in France is 67%; in Japan is 66%; in Germany is 57%; in China is 61%.

Switzerland is the only country in which households are more indebted to the banks than Australia. Their ratio is 131%. But many economists do not even believe the Swiss figure because the banks in Switzerland have significant disclosure differences to other jurisdictions (hence the proverbial ‘Swiss bank account’).

So if, on average, we in Australia are all but leading the world for household debt, but we then hear that wage rises will cause inflation (see below), and then interest rates are rising, why on Earth would the RBA resist academic input on the its role and performance? My provisional view is that that the RBA has become super timid and conservative and fears the kind of sunlight an academic study would throw on the RBA’s current methods (QE, interest rate rises, etc.). They just want to ‘get through it.’

On the other hand, if Bernie is a true believer and wants Australia to get out of this and is still thinking consistently with the duties expressed in the RBA’s statutory objects (full employment, prosperity for all, etc), he might actually just be worried that an academically honest assessment might damage Australia’s credit ratings by exposing the chaos. If that’s the case, then more power to him!

The RBA do great work, but they’re a bubble — just like academic communites can be bubbles — and that’s also why Jim Chalmers has said the review has to be independent. There’s no doubting the quality and rigor of the RBA’s assessments and analyses, which is laudable. This study of household income to GDP, for instance, is great: https://www.rba.gov.au/…/why-is-australian-household…. But the RBA seems to me to have become reactive and explanatory, at least at the moment; it’s not a rich source of policy, despite its experiments with QE. We need some Australian innovation in economics and the academy is not a place to put down in these discussions.

Credit: Cathy Wilcox for The Age