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Swan's song to be in the key of austerity

Date

Tim Colebatch is The Age's economic editor.

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COMMENT

ON SUNDAY, the Greeks had their say on austerity budgets. In 2009, 78 per cent voted for Pasok (Labor) or New Democracy (Liberals). Now the two are in coalition, and on Sunday, their combined vote fell to 33 per cent. Some swing: 45 per cent.

But austerity there will be: we will find out some of that tonight, some in the days and weeks ahead.  

Wayne Swan will be hoping his austerity budget gets a better reception. It probably will: after all, when he kicks it off with handouts to parents, dental patients, small businesses, 60-year-olds, flood victims, etc, he will clearly fail the austerity test the European Union has forced on Greece.

LIVE FROM 7.30PM: Full coverage of the 2012 federal budget here including all the winners and losers, live video from Parliament House, and analysis by Michelle Grattan, Phillip Coorey, Lenore Taylor, Tim Colebatch and Ross Gittins.

But austerity there will be: we will find out some of that tonight, some in the days and weeks ahead. And if Labor is not already in enough electoral strife, tonight's budget is a big gamble, with the potential to put it in even deeper strife.

To put it simply, this budget aims to turn a deficit of $40 billion or so this financial year into a surplus of $1 billion or so next year - at a time when, other than mining, the economy is going either sideways or down.

The government has been releasing good news before the budget, to make sure it gets noticed. But the bottom line is that in 2012-13, the government will pull more than $40 billion out of Australia's economy, either by spending less, taxing more, or both.

It doesn't have to do that. There is no pressure from markets or voters for Australia to run a budget surplus. Money is flooding in to buy government bonds. And an Essential Research poll found just 12 per cent of us want to get the budget into surplus in 2012-13.

But the government had promised before the 2010 election that the budget would be in surplus in 2012-13. At the time it thought the economy would be growing at 4 per cent by now and adding 250,000 jobs a year.

Sadly, that was another forecast that went wrong. But after Julia Gillard has taken so much flak for breaking her promise on the carbon tax, Labor decided the budget had to go into a surplus in 2012-13, whatever the economic cost.

The outgoing Greek government made a similar choice, under duress from its European partners. Greece has 24 per cent unemployment and an economy that has shrunk 20 per cent in four years. Yet the budget deal imposed by the EU requires Greece in 2013 to run a sizeable ''primary'' surplus - that is, a surplus of revenue over all spending except interest bills.

That will require huge budget cuts. So two-thirds of Greeks voted for parties to the left and right of the big two, in protest. Since the far left and far right can't agree, the centre will probably keep governing - but will demand changes to the deal.

So will France, where Socialist Francois Hollande dethroned President Nicolas Sarkozy, after campaigning to replace deficit reduction with growth as Europe's central goal. ''Europe is watching us,'' he said. ''Austerity isn't inevitable. My mission now is to give European construction a growth dimension.''

It was a similar story even in Germany, Europe's success story. In the northern state of Schleswig-Holstein, Chancellor Angela Merkel's coalition was swept from power in a swing of 7.5 per cent: the third state it has lost in a year or so.

In Europe, austerity is going out. In Australia, it's coming in.

Don't worry, the Treasurer tells us: the budget forecasts that even with $40 billion taken out of the economy, we'll still grow by 3.25 per cent. Yes, but the last accurate budget forecast was in 2007. And the last time he forecast growth of 3.25 per cent, we got just 2 per cent. If that happens this time, it will mean boom in outback mines offset by recession in the south-east. That is the risk tonight.

71 comments

  • Dear Julia and Wayne

    I lost my mid manager job in February due to global uncertainty. I had a job lined up last week but it was pulled at the last minute because the company (with global parent) said they couldn't employ managers at present due to Australia's political uncertainty and because their sector would be impacted by the budget. But of course my bills don't stop, my health insurance will increase etc etc.

    I guarantee you Julia and Wayne and Craig and all the rest of your Labor fools (who I voted for via Kevin Rudd in all honesty) you are all going to lose your jobs very shortly. You are a blight on this country and have no idea how savage the feeling is against you in my electorate too (Labor Anna Burke - good luck and good bye) .

    Commenter
    Richard
    Location
    Box Hill
    Date and time
    May 08, 2012, 8:25AM
    • You could have retrained at the Box Hill TAFE but Teddy has shut the place down.

      Commenter
      Bob
      Location
      Ballarat
      Date and time
      May 08, 2012, 10:54AM
    • So you would rather they hadn't propped up jobs during the GFC by providing Govt stimulus? That way you could have lost your job a lot sooner, as your mates in the LNP wanted it!

      Commenter
      amc
      Location
      Brissy
      Date and time
      May 08, 2012, 11:54AM
    • Correct amc, at least then we would have gone through the GFC with the rest of the western world instead of playing catch up yet again. But this time its a game of solitare with the decks stacked against us greatly!

      Commenter
      Waffles
      Date and time
      May 08, 2012, 12:37PM
    • @AMC - you don't really understand the business cycle, nor the role that government spending provides in sending false price signals (insulation, anyone?).

      Nor it seems, do you understand what sovereign risk is.

      Commenter
      Tim
      Location
      NSW
      Date and time
      May 08, 2012, 1:00PM
    • i can see your pain and i feel for you.

      but the fact is, the opposition have also pledged a surplus-at-all-costs strategy, and probably wouldnt have had a stimulus package in the first place.

      Commenter
      cos1
      Date and time
      May 08, 2012, 1:10PM
    • Waffles: Going it alone is a good idea when it comes to debt fuelled catchup recessions...Just pray that Labour stays in a little longer because it was Howard's squandering of the credit splurge that caused this mess.
      Isn't it wonderful that so many old folk got rich from housing inflation...and why is inflation such a good thing for housing but bad for everything else? Debt fuelled the share market gains, and so the losses are inevitable. Meanwhile we exported our manufacturing and went into Financial Services, which produces wealth how?

      Commenter
      Andy
      Location
      Melbourne
      Date and time
      May 08, 2012, 1:50PM
    • Dear Richard,
      Please get a real job where you produce something and stop being a manager. In Australia we are very middle manager heavy which reduces productivity. We need more people doing the producing, and less managing to increase productivity. When people get into management, for some reason there is the idea that they have 'made it', or are 'making it', but the problem is that they don't actually make anything.
      I am making an assumption here that you only have skills in management, but this is due to the fact that you are only looking for management positions.
      Good luck upskilling to get a job outside of management.

      Commenter
      Worker 1
      Date and time
      May 08, 2012, 2:00PM
  • There is no way this government will be reelected. Given that, you'd think they'd accept that and do some fantastic socially just (and controversial) changes that a government concerned about power and popularity would never do: legalize gay marriage, tax religious institutions like all other business, etc, etc. But no, they have to live in denial and punish the economy instead. Oh, Julia. I had such high hopes for you.

    Commenter
    Asynca
    Date and time
    May 08, 2012, 8:27AM
    • Yeah, every governement do things that its people don't want, because that will make it a better place to live.

      Commenter
      Johnson
      Date and time
      May 08, 2012, 4:38PM

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