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This budget is too good to be true


This budget is not as good as it looks, but nor is it as bad. It's too good to be true.

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Not a lot of pain: Gittins

The government has a lot of their economic ego resting on returning the buget back to surplus, says economics commentator, Ross Gittins.

In one sense it looks good in that it plans to convert a budget deficit of $44 billion this financial year into a surplus of $1.5 billion next year.

It also seems good because it has achieved this miraculous feat without any particularly tough spending cuts, apart from a few aimed mainly at the quite well-off.

Indeed, this supposedly tough budget includes a few sweeties: a cash bonus for the parents of schoolchildren and a special but tiny increase for people on the dole and other benefits.

What's not good about that? First, the cash splash has no economic justification. It is a political bribe from a deeply unpopular government.


More seriously, most of the real work of getting the two sides of the budget back into line has been achieved by the simple expedient of pushing planned spending off into the future.

There are few 'quality cuts' in this supposedly cost-cutting budget – very little eradication of wasteful spending.

But this lack of genuine, deep cuts in spending all mean the budget isn't as bad as it seems – in the sense that it won't deal the blow to demand in the economy that its planned withdrawal of $45.5 billion, the turnaround in the budget balance, implies.

Will this be, as Wayne Swan says, a 'surplus for confidence and interest-rate relief'?

It's unlikely to give much boost to business and consumer confidence. But it will, to some small extent, give the Reserve Bank greater scope to cut interest rates further should the economy fail to accelerate.