Rarely have economic commentators been so united on an issue arguing that the Australian Government should not aim for a budget surplus this year. From John Quiggin to Warwick McKibbin, the OECD to the IMF, respected economists across the political spectrum have taken the view that the best economic approach is not to try and fill the 2012-13 government revenue shortfall by making further budget cuts.
From a macroeconomic standpoint, there’s barely any difference between a $1 billion surplus and a $1 billion deficit. Far more important is the fact that when the Global Financial Crisis hit, we increased spending: supporting jobs through household payments and infrastructure programs.
In the past five years, we’ve found savings that total $138 billion. We boosted government spending when private demand fell, and cut spending as private demand recovered. Cutting spending isn’t easy. When we means-tested family tax benefits and the Private Health Insurance rebate, the Coalition said we were playing ‘the politics of envy’. When we phased out the outdated Dependent Spouse Tax Rebate (a measure that discourages secondary earners to work), we were accused of attacking the family. When we reduced the Baby Bonus for second and subsequent children, Joe Hockey drew comparisons with China’s One Child policy.
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Wayne Swan will be Johnny-on-the-spot on Tuesday, holding talks in Washington on the day Americans vote to decide who will be their president for the next four years.
Debate over economic policy dominated the campaign and will almost certainly be crucial in determining whether Barack Obama gets another term or is replaced by Republican Mitt Romney. Swan will obviously take a keen interest in the result.
But the Treasurer will be more concerned about a matter that - while it hardly got a mention in the campaign - could plunge the US into recession within months, with inevitable consequences for Australia. It is known as “the fiscal cliff”.
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Warren Buffett once said that only when the tide goes out do you discover who’s been swimming naked. The tide is certainly going out on the Gillard government, but that doesn’t stop them from trying every trick in the book to delay everything from being revealed.
At a time when budget honesty is desperately needed there is strong speculation Labor is going to rush out its Mid Year Economic and Fiscal Outlook (MYEFO) weeks earlier than normal perhaps even as soon as Monday.
If Labor is to release the budget update next week it will be for the most cynical of reasons. It will allow them to avoid factoring in additional economic data due in late October which is tipped to show declining revenues. Of the past 14 MYEFOs only two have been released in October and that was in advance of November elections.
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