The Government’s medium-term fiscal strategy is outlined in Budget Paper 1, most recently released last May. It states
The Government’s medium‑term fiscal strategy is to:
- achieve budget surpluses, on average, over the medium term;
- keep taxation as a share of GDP below the level for 2007‑08 (23.7 per cent of GDP), on average; and
- improve the Government’s net financial worth over the medium term.
This is identical to the Government’s medium-term fiscal strategy published in the 2008-09 Budget. It is a variation of the Coalition’s strategy
to maintain budget balance, on average, over the course of the economic cycle
The OECD also noted (in 2008)
It is also noteworthy that both the new and the previous government made public commitments separate from the Fiscal Strategy Statement that are more ambitious. The previous government made a public commitment to achieve a 1% of GDP budget surplus. The new government has made a stronger public commitment to achieve a 1.5% of GDP budget surplus in the 2008/09 budget, as well as committing any revenue windfalls during the year to increasing the surplus – is not to spend them.
The medium term is frequently defined as 3 to 5 years (the long-term being more than 5 years). Not only did the government fail in its 1.5% of GDP budget surplus in 2008/09 (it delivered a deficit), it has delivered deficits for five years and will do so again in 2012-13. The government has failed to meet its medium-term fiscal strategy.
Let’s not forget that in its 2012-13 Budget (May 2012), the Government stated
The Government is returning the budget to surplus in 2012‑13, with surpluses growing across the forward estimates. …
Returning to surplus provides ongoing scope for monetary policy to respond to economic developments. It allows monetary policy to play the primary role in managing demand to keep the economy growing at close to capacity consistent with achieving the medium‑term inflation target.
A strong fiscal position sustains confidence in the strength of Australia’s public finances. The European sovereign debt crisis has underscored the importance of maintaining strong fiscal discipline and credibility. That is now more important than ever, with financial markets punishing those economies without it. Growing surpluses provide a fiscal buffer in uncertain global economic times.
Together with Australia’s very low-level of public debt, the Government’s strategy to return the budget to surplus reinforces fiscal credibility and demonstrates the strength and sustainability of Australia’s public finances.
The fact the government is not returning the budget to surplus, and has failed to meet its medium-term fiscal strategy, must reduce, not reinforce, fiscal credibility. It reinforces, too, an appalling stewardship of the economy by the Gillard/Swan Government.
Perhaps Labor should revise the strategy to
The Government’s long‑term fiscal strategy is to:
achieve budget surpluses, on average, over the long term …
in the long term, you might be dead, but Labor is alive and well.