Prime Minister Tony Abbott. Photo: Kate Geraghty
Leading economists have rejected the Abbott government’s claims of a ’’budget emergency”, saying the budget only faces a medium-term “problem” rather than a crisis, which should be dealt with sooner rather than later.
The economists, who took part in BusinessDay’s mid-year economic survey, also rejected the notion of a “debt crisis’’, with one saying it is an abuse of the language to apply the term to Australia.
Fairfax Media surveyed 25 of Australia’s leading economists in late June, drawing on the expertise of major banks, universities, private wealth funds, unions and industry groups.
Their answers come at the end of a week in which Labor, Green and Palmer United senators added $12 billion to projected budget deficits.
“Australia is not facing a budget or a public debt crisis right now,” AMP Capital chief economist Shane Oliver said. “Our budget deficit and net public debt are low by OECD standards, our bond yields are low and foreign investors are happily buying our bonds.”
Chris Caton, from BT Financial, said it was “simply absurd” to suggest Australia had too much government debt.
Saul Eslake, of Bank of America Merrill Lynch, said the incoming conservative government in Britain faced a “budget crisis” and a “debt emergency” in 2010. The projected deficit was 10 per cent of GDP. Net public debt was in excess of 60 per cent of GDP. To apply similar terms to Australia with a prospective deficit of 2 per cent of GDP and net public debt of 15 per cent of GDP was “to abuse the English language”.
On average, the panel expects the Australian dollar to drop to 86 US cents by June 30. Those surveyed expected the nation’s economy to grow by 2.8 per cent for 2014-15, slightly lower than the budget forecast of 3.1 per cent. They expect the Reserve Bank to keep interest rates on hold for the rest of the year.
Most of the economists surveyed said it would be better to fix the expenditure side of the budget before raising taxes.
Scott Haslem, of UBS, said the budget’s focus on more efficient government, reduced middle-class welfare, while quarantining only the poorest, was “warranted”.
But Richard Robinson, of BIS Shrapnel, said Australia needed a “decent mining tax” and state land taxes, both recommended by Labor’s Henry Tax.