Friday, March 30, 2012

Read Colebatch: "Swan's foolish surplus fetish"

In today's Age:

WAYNE Swan's determination to deliver a budget surplus, regardless of the state of the economy, is seriously reckless. Labor has chosen to risk sending most of Australia into recession in order to keep a promise it should never have made.

No Australian government has ever proposed such a huge withdrawal of spending from the economy. On his own published figures, Swan plans to take us from a deficit of $37 billion this financial year, perhaps more, to a $1.5 billion surplus in 2012-13.

On Treasury's estimates, that would take at least 2.6 per cent of GDP out of the economy in 2012-13. That is equivalent to shutting down the entire electricity industry, all arts and entertainment venues and all airline travel for a year.

Why on earth would you do this in an economy that has added just 10,000 jobs in the past year, where the growth rate is just 2.5 per cent, and most of that is in mining and related industries, and with Victoria and south-eastern Australia on the verge of recession?

What Swan is planning for 2012-13 goes far beyond any previous budget cuts. In 1986, the hairshirt Hawke-Keating budget cut away 1.1 per cent of GDP. The first Howard-Costello budget in 1996 took out 1 per cent of the economy.

Labor now pledges to deliver cuts two to three times as large as those landmarks of fiscal austerity - at a time when most sectors of the economy are already going backwards or sideways under pressure from the high dollar and low demand.

Swan says it will be OK because ''the economy is moving back towards trend growth''. Not if you take away 2.5 per cent of it, it won't be....

Continued here.

Related Posts

. Nation divided, revenue weak... so it's a new round of budget cuts

. Don't treat fiscal policy as a morality play - IMF

. Glenn Stevens is perplexed - he thinks we're doing rather well


mOOm said...

No, it's a great idea, it's the only way in the short-run to get the RBA to cut interest rates which are also keeping the Dollar high..

Peter Martin said...

I can see the logic, but there's no need. The RBA will have to cut interest rates soon in any event, for all the right reasons.

The Lorax said...

Everyone overestimated the mining boom positives and underestimate the negatives from the strong dollar.

Everyone. Treasury, the RBA, ABARE/BREE, most bank economists (apart from Bill Evans) and most of the economic commentariat (apart from Colebatch).

Sadly, Treasury still believes the rivers-of-gold are about to start flowing from the mining boom. Real soon now, you just wait, anytime now...

I mean, not a week goes by without the likes of Pascoe or Gittins lecturing us on the massive investment that really hasn't got going yet.


This heinous mining boom is tearing apart the fabric of our society, and we need to do something. Fast.

kymbos said...

I would like to gently suggest that shutting down the electricity industry for a year would result in more than a 2% reduction in annual economic growth.

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