I have an op-ed in The Australian on Wayne Swan’s no-surplus announcement.
CAN you imagine if John F. Kennedy had announced that the US would send a man to the moon, and then leave him there?
Bringing him home would be too hard, too difficult, not really worth the expenditure. Well that scenario is what Wayne Swan has delivered. He sent our budget into deficit and never brought it back to surplus.
This government came to power in November 2007 promising that the reckless spending must stop. But it never did. The global financial crisis can only explain so much.
This is a government that has never really committed to the kind of fiscal discipline necessary to keep our fiscal affairs in order.
Our own Judith Sloan makes this point:
The mushy soft Keynesian rationale for the budget now remaining in the red, a particular favourite of political commentators, overlooks the importance of the credibility of the government in terms of the execution of budgetary policy and anchoring expectations. Its fiscal credibility is now shot. The real worry is that the government will now drop its bundle and lose the will to secure budget surpluses beyond this financial year.
While Tony Makin tells uncomfortable truths:
As any second-year undergraduate economics student can tell you, fiscal expansion under floating exchange rates appreciates the currency, whereas fiscal contraction depreciates it.
The other major reason for keeping the budget surplus objective is that fiscal consolidation is an antidote for the Dutch Disease Australia has been suffering because of the mining boom.
While I don’t think Australia suffers Dutch disease, anyone complaining about the high dollar and calling for debt and deficit is being silly.
Even the AFR editorial is critical:
Mr Swan’s Thursday announcement did not even contain the “deficit” word, just as his speech for the 2009 budget that ended Australia’s surplus era failed to mention it. The Treasurer did not take the opportunity to maintain the government’s determination that this would be just a temporary setback and that the government was committed to a surplus next year. Yet Labor continues to promise big-ticket spending items to be funded on the never never, even though its own Treasury secretary, Martin Parkinson, has been warning for months that the community’s spending demands were out of kilter with budget tax revenue.
Mr Swan’s case to allow the budget’s “automatic stabilisers’’ to weaken its bottom line as the economy softened normally would make sense. Many in business will endorse it. By now, however, the budget should be deep in the black, giving it room to cushion a looming economic growth gap that Reserve Bank governor Glenn Stevens warned of in his exclusive interview with this newspaper this week.
Instead, the budget remains in both headline and “structural’’ deficits and so is highly exposed to any sharper downturn in commodity prices. That is devastating for one of Labor’s proclaimed fiscal rules: to keep the budget in surplus over the course of the economic cycle.
Mr Swan blames Labor’s surplus retreat on the supposed unexpected decline in the economy’s terms of trade, driven by the fall in iron ore and coal prices. Yet this explanation exposes the imprudence of Labor’s reliance on sky-high commodity prices to fund its budget spending.