Last week the Business Spectator carried this gem (zero-price registration required):
… there are some who suggest the government should loosen up a little and let the budget slip into deficit.
Unfortunately, these sorts of comments rarely, if ever, include any analysis of the consequences of staying in deficit.
I have not seen anyone who is saying that the government should remain in deficit in 2012-13 articulate how big the deficit should be, nor offer any analysis of what the consequences of remaining in deficit would mean for monetary policy, the Australian dollar or Australia’s credit rating.
What size deficit are they advocating? Is $2 billion acceptable, what about $5 billion? $10 billion? $40 billion? You will rarely, if ever, see hard numbers put on the deficit objective.
There is also the legitimate question that if it is okay for the surplus to be pushed back to 2013-14, what if there is another flood, cyclone, war, tax shortfall? Shall we push the surplus back to 2014-15 or 2015-16 or 2016-17?
See the problem? No discipline.
Exactly.
One of the comments had this, rather tired, cliché:
What is the difference between a surplus of ~1b dollars and a deficit of ~1b dollars?
Well, okay. Let’s cross that bridge when we get to it. The basic fact of the matter is that Swan has failed to produce a budget deficit of $1 billion. Given his past performance that would be an extraordinary achievement.
The problem is congenital, it is not and has never been in Labor’s DNA to achieve a real budget surplus.
Their last circa 1989 surplus was in words of Paul Keating, the then current world’s greatest treasurer, an accident which would never happen again on his watch.
Labor, by action and design, have shown that they lack the moral discipline and authority needed to govern effectively and manage a 21st century economy.
I’m all for discipline, but look at the Treasury note and bond market. They can’t seem to get enough of Australian government debt. I guess for the moment Australia is still seen as a better destination than other alternatives. There are no disciplinary signals coming from the market. If credit were harder to find, maybe the children in charge might have focused on the deficit and the interest bill somewhat earlier.
Currently there’s about $7 billion of taxpayer money paying the interest bill. What if we get a spike in interest rates like the late 80′s ? The interest bill (on current debt) could easily triple.
Does Kouk really mean it? He is a just helping to protect Gillard and Labor from attacks from the Left. This is the same guy who thinks the stimulus spending was a good idea. You either believe that steering the nominal economy is the task of monetary policy or you don’t. Fiscal policy is about the supply side.
Here is an article where Kouk supports counter-cyclical fiscal policy. So he supported the stimulus spending in 2008-09 (which mainly took place in 2009-10 of course as is the wont of discretionary fiscal policy) and he supports significant fiscal tightening now as real growth has been close to trend. All very consistent you might say. Except that Kouk is not stupid. He recognises that the nominal economy is presently weak and has needed (and still needs) monetary stimulus. You can’t have it both ways Stephen. If you believe in counter-cyclical fiscal policy, you should support a more relaxed timetable to achieve a surplus now. If you believe in orientating fiscal policy to the supply side and monetary policy to the demand side (as I do), then you can argue for a surplus now. But the problem is, that would nullify Kouk’s criticisms of Howard and Costello pre-2008 (who used much of the surpluses to lower marginal tax rates and thereby improve incentives to work). As a Gilllard cheerleader and hater of the Coalition, that would be too hard to bear.
One guilty of advocating a deficit without considering the consequences is Chris Richardson. I’m convinced that’s the main reason the ABC is always interviewing him.