Tuesday, September 29, 2009

$11 billion fewer reasons for the Coalition to complain

And they're just the start

From Swan:


The Australian Government general government sector recorded an underlying cash deficit of $27.1 billion (2.3 per cent of GDP) for 2008-09. This outcome was
$5.0 billion better than expected at the time of the 2009‑10 Budget, reflecting lower than anticipated spending of $2.2 billion and higher cash receipts of $2.8 billion.

Total tax receipts were $3.3 billion above the estimate at the 2009‑10 Budget, primarily due to stronger than expected company income tax receipts of $3.6 billion, partly offset by lower than expected personal income tax receipts of $0.5 billion.

Lower spending was due to a number of one-off factors, as well as lower income-support payments, including a reduction in payments of $138 million for the Newstart Allowance. This outcome reflects in part the success of our economic stimulus which has meant more Australians in jobs and fewer Australians collecting unemployment benefits than would otherwise be the case.

The stronger budget outcome is also reflected in a significant improvement in the expected Australian Government net debt position. At the end of 2008-09, the level of Australian Government net debt was -$16.1 billion, which is
$11.5 billion better than expected at the time of the 2009-10 Budget.

The Government is fully committed to its fiscal strategy to return the budget to surplus as the global economy recovers.

The last bit's the kicker. You wait. From here on, we're about to learn what austerity means. And the Coalition won't be able to complain - they're been asking for it.


Persse said...

"And the coalition won't be able to complain - "
Are you willing to put money on that?

Peter Martin said...

No Persse. I'd lose it.

Andos said...

If the Government follows through with its misguided intention to "return the budget to surplus", then the 'recovery' won't last very long.

derrida derider said...

But surely this greatly eases the pressure on the government to bring in austere Budgets. Why suffer such pain when there's no longer much economic justification for it?

And I'm with Andos - the guff coming from the RBA, and from bond market commenters talking their book, risks sending us into the recession we have so far avoided. There is absolutely no reason why we should be in a hurry to tighten either fiscal or monetary policy. I only hope Treasury has more sense than to listen.

Andos said...

There never has been any economic justification for austere budgets. The only economic reason a Government has to reduce spending is if the economy is approaching it's limit of productive output. We're so far away from this that it's rediculous to be talking about reducing spending.

When underemployment and unemployment start falling to historical lows, then we can talk about having the right level of Government spending.

Pete (not Peter Martin) said...

"We're so far away from this that it's rediculous to be talking about reducing spending."

Please explain to me what happens when we rack up Gov debt beyond 50% of GDP? How about 100% of GDP?

When interest rates rise and the Gov starts to struggle to pay even the basic interest on borrowings, where will it get this money to spend from?

It reminds me of a casually employed person happily maxing out their credit card in order to sustain a higher standard of living - in the vain hope that sometime in the future they will get a better paying job.

Andos said...

Pete (not Peter Martin):
Government debt is completely irrelevant. The level of Government debt has absolutely no bearing on the Government's ability to spend in AUD.

Comparing a private citizen with a sovereign Government is completely false. The Government is the monopoly issuer of the currency which the person uses to spend, and doesn't need to fund their spending with debt.

Please read some of Bill Mitchell's writings on the theory of modern monetary economies: http://bilbo.economicoutlook.net/blog/

Persse said...

I think there is a danger of being in too much of a hurry in cutting back on stimulus.
However, my take on lessons from the GFC is that it is important for a Government to be in a position to stimulate on a sufficiently large scale. If interests rates are already low and Government borrowings are already high, this has to be a rate limiting position. My point is that the stimulus has to include its corollary - fiscal restraint in its conception and the implementation of its time lines.
Pity economists aren't like engineers who can work these things out.

Andos said...

Hi Persse,
For a rebuttal of that, see http://bilbo.economicoutlook.net/blog/?p=5219
The level of Government borrowing has no influence on its ability to spend.

Anonymous said...

"The Government is the monopoly issuer of the currency which the person uses to spend, and doesn't need to fund their spending with debt."

That is simply theoretical. It is not the practice of the government to create more money without financing it from revenue or debt. That policy is unlikely to change. In any case, there is not much evidence to suggest that the theory you've advanced is actually practical. There could be significant risks to inflation and higher interest rates under such an economic policy.


Anonymous said...

Anonymous @ 2:53 PM: Quantitative easing, anyone?

Pete (not Peter Martin) said...

"...and doesn't need to fund their spending with debt."

Anonymous has the right idea here.

You are correct that Governments do not have to borrow to spend. They can 'print money' so to speak to do it instead.

Governments who print money will see interest rates (from overseas lenders) rise. Seeing that 40% of bank capital is sourced from overseas, this would have a seemingly large impact on the economy, right?

So then the Gov can print even more money to bail out the banks...

And rates will rise even more.

Keep going down that path and our dollar will be worthless.

So, if the Government doesn't want to go down that path, then yes it does need to borrow to spend, be it through sale of bonds, concessions or direct borrowing.

Oh, I forgot to mention of course they can sell our assets to get money. It isn't exactly a very good long-term strategy though, and does nothing to fix systemic issues.

Andos said...

I really don't want to get into a slanging match with polemicists, but everything you've just said, Pete, has no bearing whatsoever on the fact that the level of Government debt is irrelevant to the Government's capacity to a) service that debt and b) spend money on whatever they want.

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