The economic crystal ball doesn’t stand a chance
There might be a substantial number of people a bit gobsmacked that a Budget which started only last July 1 is after just four months some $16 billion out of whack. So out of kilter, in fact, that the Government today has had to effectively recast all its expectations and introduce some big-hit measures to get back on course.
Consumers who already are close to deciding that the next few years might best be endured down in the onion cellar with a supply of can food and batteries might now feel their instincts are right.
But this is what happens to a 21st century economy exposed to global markets which dip and dive frequently and have almost instantaneous effects on domestic economies. And the response to these fluctuations is important.
The Government had to save a lot of money but it had to do so without putting the brakes on an economy which was battling a high Australian dollar and reduced prices for our iron and coal.
The Government believes it has done that, and so has not added to unemployment. The big changes announced today have been structural rather than direct fund raising through tax increases.
So the cost of the Private Health Insurance Rebates will be reduced to prevent them getting out of hand in the long run, and benefits granted under the Baby Bonus will be cut for second and third children.
Changes such as these are what Liberal and Labor front line economic managers would be looking at to ensure the schemes are sustainable, and to curb the demands based on a sense of welfare entitlement.
However, when these changes are made at a time of dislocated Budget forecasts they are seen as emergency measures, not carefully considered reforms. Those who lose out will probably feel they are being made pay for the Government’s Budget miscalculation.
Forecasters make presumptions, and Australia’s got some of the best around, said Wayne Swan. “But they can’t forecast the unknown,” he said. By that he meant the sudden decline in China’s growth and demand for our materials, which has caused much of the tax revenue drop.
Treasurer Swan said the economic “storm clouds” in Europe, Asia and the United States had made returning the Budget to surplus much harder.
“It’s pretty obvious to all that ... this mid-year review has been put together amid storm clouds which are hanging over the global economy,” he told reporters. “This lower global growth outlook has had another very big whack at government tax revenues and has made it harder to deliver a surplus.”
Economic growth is forecast now to be down a jot to about three per cent, unemployment at 5.5 per cent and inflation low.
All of that is much better than being reported from Europe and the United States where sustained growth was lost to the global financial crisis four years ago and not recovered.
Still, the magnitude of the Budget reappraisal is daunting and the Treasurer and his colleagues will be tested by voters seeking assurances it will won’t be necessary in another four months.
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