Sunday, April 15, 2012

Does a surplus make sense? Colebatch has Wong on the ropes.

Meet the Press, Sunday:

RIMINTON: Welcome back, this is Meet the Press. Our guest is the Finance Minister, Senator Penny Wong and welcome now to our panel, Sabra Lane from the ABC and Tim Colebatch from The Age. Good morning to both of you.

COLEBATCH: Good morning. Minister, we thought we were going to be growing at 4% or 5% at this time when the budget surplus was going to be happening and it made a lot of sense. We are, in fact, growing at about 2.5%. Our state here in Victoria has just lost 30,000 jobs in six months. Is this a good time to take $40 billion out of the economy?

WONG: We think it’s the right thing to do to bring the budget back to surplus and there are a number of reasons for that. One of them is that fiscal policy should look to the long-term. As a Finance Minister, you would expect me to say, we should set ourselves up for the long-term, but also, as you know, it's important for Government at a time where the economy is on track to return to trend growth.

COLEBATCH: “Trend growth” – what is trend growth? Can you explain that?

WONG: To ensure that the RBA has the flexibility to move when it comes to interest rates, should it choose to do so. Tim, I’ve read a couple of your columns, I understand the position you have on this. I would make the point that the forecasts that the Government made and the Treasury made in the mid-year review do take into account the fiscal consolidation that the Government is proposing.

COLEBATCH: Ok, which is 2.5% of GDP and you’re saying that if you take that out, you’ll still get trend growth which is 3 or 3.5%? Seriously.

WONG: What I'm saying is that the mid-year review, which forecast, as you recall, 3.5%, assumed the fiscal policy that the Government's got in place. And you mentioned your home state of Victoria - we are very conscious of the very different experience of the economy that we have at the moment.

I mean, things are very different if you are a manufacturing firm in South Australia, my home state, or here in Victoria, to a mining company in Western Australia. But let's also remember what sort of jobs growth we had – I think it was 44,000 last month. That's a very substantial increase in employment. The unemployment rate still has a five in front of it, putting us really in a very good place compared to most other comparable economies.

LANE: On Tim's point, an analyst this week from Société General warned that markets were watching Australia and were very concerned that you would pull out too much money, possibly triggering a recession. He said international credit rating agencies would have no problem in his words, “stabbing Wayne Swan in the back” – the implication being that they would downgrade Australia’s credit rating.

WONG: Let's remember, first – this is the Government that in the GFC acted to support jobs. Of course, we are a Labor Government. We acted to support jobs. In our view also, that it is the right thing to do, to bring the budget back to surplus, given where the economy is going.

One of the things we seem to forget is what's happening on the investment side. In the three-year period of which we’re in the middle of at the moment, mining investment goes $47, $95, $120 billion over three years. $120 billion is slated for next year. Now, I accept that there is a different experience in different sectors in the economy. But we shouldn't forget what that investment boom means and what that investment pipeline means.

When you're talking about the different experience of people in the economy, that's why you should do things such as the Government is doing – investing in skills, innovation, participation and the mining tax – which is about taking money out of profitable mining companies and spreading it across the economy through things like tax cuts for small businesses...

COLEBATCH: Let’s come to something the Coalition’s saying which makes a little more sense – that’s your Shadow counterpart, Andrew Robb. He gave a speech where he spelt out eight different measures where the Government has shifted more than $6 billion of spending out of 2012-2013. I’ll just quote one example – the Energy Security Fund gets $1 billion this year, $1 million next year, $1 billion the year after and $1 billion the year after that. Now, that’s surely a budget fiddle. How can you – if those are the ways you get a budget surplus, people are going to say, this is phoney, aren’t they?

WONG: But you know the sorts of numbers you’re talking about are… in the scheme of the budget, you can’t simply achieve a surplus by pretending – you’ve actually got to make hard decisions. And if Andrew Robb is so concerned about budget integrity, why is it he keeps getting his costings wrong? –

COLEBATCH: But I was asking about yours –

WONG: But Tim, the criticism from the Coalition – and people should start saying to them, well, but why don’t you put up or shut up?

RIMINTON: What Tim’s just said though, is tricky accounting. And that’s the argument that the Coalition –

WONG: The ‘tricky accounting’ is the Coalition who has never actually put forward costings which add up.

COLEBATCH: But the tricky accounting in this case, is also the Government, surely.

WONG: What I’m saying to you is that we have laid out our path to return to surplus and as you know, we will lay that out again in the Budget which will be handed down. No doubt, people like yourself will scrutinise it closely. But it is true, there were some up-front payments for example, in relation to the carbon price. And we explained why that was the case. But again, what I’d say is you don’t come back to surplus simply through accounting. You come back to surplus because you make hard decisions and hard decisions which so far, Andrew Robb has talked about but never delivered. In fact, he’s been overruled.

Related Posts

. What to look for in Budget 2012. Pain, deception...

. Tough budget. Is Swan having us on, or...

. Read Colebatch: "Swan's foolish surplus fetish"