'We have inherited from Labor gross debt'
Budget deficits could persist for a decade if no action is taken says Treasurer Joe Hockey in his Mid Year Economic and Fiscal Outlook statement. Vision: ABC.PT3M6S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2ziiw 620 349 December 17, 2013
Presumably Joe Hockey believes these Treasury figures, so here’s the simplified bottom line beyond the deficit hyperbole and predictable politics as he danced the MYEFO on the National Press Club stage:
- GDP is growing by 2.5 per cent this year.
- The deficit is predicted to be 3 per cent of GDP.
- Thus, if we didn’t have the big fat deficit, we’d be in recession with unemployment rising very sharply and many businesses going broke.
So there are reasons to be thankful for the deficit blowout the government tends to paint as purely evil.
If we didn’t have the big fat deficit, we’d be in recession with unemployment rising very sharply.
Not all the $47 billion deficit is stimulatory. The $8.8 billion Christmas present for the Reserve Bank is neutral, even though it represents more than half of the blowout since the August pre-election statement. The Treasurer admitted that the other half is from a softening economy – weaker receipts through lower taxes and automatic bigger spending. So all the debt isn’t the “fault” of the previous government. It just is.
Treasurer Joe Hockey delivers his midyear budget at National Press Club.
In the next financial year, GDP growth is forecast to remain 2.5 per cent, so Treasury’s forecast of a 2014-15 budget deficit equal to 2.1 per cent of GDP is again most welcome – unless there are particularly large parts of the Australian economy you’d like to see in the hospital ward.
Those 2.5 per cent GDP forecasts are pretty much just catching up with what the Reserve Bank has been saying. Predicting that unemployment will rise to 6.25 by June and stay there as far as the eye can see (ie beyond the next election) takes the political game a step further.
No wonder then that all talk of delivering a budget surplus is off the agenda. I’m laying claim to be the first user of the phrase “An Abbott government will never deliver a surplus – it’s not in their DNA” back on August 30.
A rational treasurer
Parts of Joe Hockey’s speech today sounded like the work of a rational Treasurer, understanding at last that the negative mindset of opposition is not what the country now needs. There was a promise to draw a line under the Labor figures – hopefully that implies a willingness to move on instead of suggesting the economy has been trashed. It hasn’t been. Most of the spending has been required to limit unemployment getting out of control.
Certainly Labor wasted some money on particularly stupid spending. The Coalition is promising to do the same. But both are broadly on the same page of supporting the economy through a softer-than-desirable patch with basic Keynesian principles.
And no wonder. The way the government has so rapidly fallen behind in the polls indicates the public is over the idea that all the nation’s problems are the fault of the carbon tax. Hopefully the political discipline the polls should impose will encourage Hockey to run a rational rather than doctrinaire ship.
As an example, today the election promise to scrap 12,000 public service jobs through natural attrition was itself scrapped. The excuse is that the Labor government had already set in train the axing of 14,500 jobs. Whatever – moving the 12,000 target off to the backburner of further review is encouragingly adult.
Borrowing to lend
On the other hand, the Treasurer and Finance Minister fumbled when asked about the commitment to scrap the Clean Energy Finance Corporation chaired by Jillian Broadbent. It’s a commitment that will cost taxpayers $439 million when the CEFC is actually making money. Senator Cormann seemed to want to predict that the CEFC might not make money in the future if it was allowed to continue. Hockey said the government “shouldn’t be borrowing money to lend money”.
Well, that’s not necessarily true. As the resources sector sheds several tens of thousands of construction jobs over the next four years, the government should indeed be borrowing cheaply to lend sensibly for the right sorts of projects. And all the more so if it’s in the area of a daft “direct action” greenhouse policy that just about nobody, including the relevant minister, thinks makes sense.
Overall, the Treasurer should keep in mind that the public is well capable of realising that, come June 30, the coalition will have been in government for 10 of the financial year’s 12 months. It’s your budget now, Joe.
The disappointing aspect of JOEFO was that, after 101 days, there’s still nothing concrete about how the Treasurer will deal with what he called “a major budget crisis” back in May. We’re told to wait and see what’s in the next budget, what happens after the various reviews and audits and inquiries. There’s an ominous warning that welfare, health and education will all end up feeling the scalpel, that expectations will have to be lowered.
The government should simultaneously drop the Santa Claus act of tax cuts somewhere along the way (on election eve?) and maybe we can all grow up a bit.
Michael Pascoe is a BusinessDay contributing editor. Twitter @michaelpascoe01