Thursday, May 15, 2008
Speaking to the Canberra Times at the annual post-budget Press Club lunch Mr Swan agreed that Canberra residents were breathing more easily after after Tuesday's Budget.
“All those dire predictions didn’t happen,” he said.
The Budget papers describe the public service jobs cuts as “modest”, amounting to 1,200 staff nationwide.
Asked whether his future budgets would be even less tough Mr Swan replied: “You shouldn’t confuse tough with stupid”...
“If we took some of the advice we are being given to cut spending and to rein in demand we could slam the economy into a wall.”
“We’ve got very uncertain international environments, slowing growth, and we’ve got higher domestic inflation. Each of those things mean that we have to strike a balance, and the balance that we have struck is we believe the right one for the long-term health of the country.”
Private sector economists disagree. Most who were contacted yesterday said they believed the budget cuts were too mild to take pressure off interest rates.
“The budget won't add to upward pressure, but nor can it really be said that it exerts maximum downwards pressure,” said the ANZ Bank's chief economist Saul Eslake.
“Interest rate hikes remain an open question,” said the chief equities economist at Commonwealth Securities, Craig James.
“Over this year and next, decisions made by the government in the budget will actually be stimulating, not constraining the economy.”
Chris Richardson of Access Economics said that if the Treasurer wanted to notably reduce the ongoing inflation risk he should have cut another $3 billion out of spending in the coming financial year.
“That is not an easy thing to do, cutting spending does involve pain,” he conceded.
“But it is pain that is going to be felt anyway, either in mortgage rates or in the decisions of this government.”
The Macquarie Bank's Rory Robertson said he would be “surprised if the Reserve Bank or anyone feels a sudden need to lower their inflation or interest rate forecasts” as a result of the budget.
The market reaction to the budget's release at 7.30pm Tuesday bears this out. Both the dollar and bond prices were little moved as a result of the Treasurer's speech.
By contrast the release of lower than expected wage price figures yesterday moved the markets sharply, pushing up the share market by 50 points and pushing down the dollar one quarter of a cent.
Wages climbed by only 0.9 per cent in the three months to March and by 4.1 per cent over the year. “This will be music to the ears of anyone with a mortgage and music to the ears of the Reserve Bank,” said Craig James.
Mr Swan told yesterday's post-budget lunch that he wanted to explain why he had gone “as far as we did and didn’t go further”.
“If you slam the breaks too hard it might have other consequences that you don’t want,” he said.
“It is true that we might have been able to do more and we are certainly going to go back in Razor Gang Mark II and look for further savings.”
“But we have gone as far as we thought we needed to go given the temper of the times”.
Mr Swan said the second razor gang review would begin soon.
“I'm not sure that it will be starting tomorrow. The Finance
Department might have a few issues with that. But we will get to work soon.”