From the AFR:
“To engage in some sort of European-style austerity for austerity’s sake approach would be, I think, very detrimental to growth in jobs and our economy and the government won’t do it,” Mr Swan said at an Australian Business Economists breakfast.
“We’re determined to come to a surplus at a pace that’ll be consistent with strong growth and full employment.”
Mr Swan would not say whether that meant scrapping a surplus in 2013-14 as well.
“I’m not going to try and pre-empt the forecasts that’ll be in the May budget,” he said.
“In December I said to cut further in the face of that revenue gap would have been deeply irresponsible and would’ve impacted on growth and jobs and when it did so would’ve had a further impact on the government bottom line.”
Quite right. Too late and too weakly put but hey!
This will come as some relief to the RBA, who clearly do not want to cut further lest our asset bubbles blow up further.
Still, one wonders what the ratings agencies will think. This is not counter-cyclical spending, it’s chronic economic and budget weakness.
This is why ideally governments run surpluses in the good years. Labor appears congenitally disabled in this regard.
Both sides are spineless in this regard.
I think one has a better track record…
Bullshit.
Howard should have been running massive surpluses in the mid-noughties but spent it all on middle class welfare. Howard’s spend-a-thon during the 2007 election campaign was embarrassing.
And as GD says below, you can hardly compare the economic environment of 2001-2007 with 2007-2013.
I don’t disagree that Howard/Costello should have been more circumspect – however their stay in power reflected the zeitgeist of the times – boom baby boom.
Nonetheless when they handed over the baton the debt position was good.
Thanks Lorax.
Exactly.
Costello’s unofficial policy of “handing back the surplus” whenever it exceeded 1% of GDP was completely idiotic and ideological. Especially when Nominal GDP was growing at around 8% in 2005-06 and the CAD was blowing out.
Saying fiscal policy is counter cyclical because you are in surplus is like saying a 5% cash rate is tight money because it’s higher than 4%.
“Nonetheless when they handed over the baton the debt position was good”
Because the deficit position of the PRIVATE sector had been exceedingly poor. Howard and Costello didn’t deliver a decade of budget surpluses to us – we delivered it to them as a result of the biggest private credit binge in history.
The baton was handed to the other mob just before historical normality re-asserted itself.
“Nonetheless when they handed over the baton the debt position was good.”
Yes, feel free to ignore the middle-class welfare that has left the budget in structural deficit.
And the massive increase in private debt which will likely end up nationalised.
You parasitic lefties fail to understand that how was Costello etc supposed to run 5 or 6% surpluses w/o the opposition creating hard luck stories about scrooge stashing away the surplus. If Costello/Howard had actually run those kind of surpluses they would not have been in power for so long.
Any objective view suggesst they probably saved what was politically possible to save at the time.
3d1k – whose debt postition was good?
Certainly not the private sector’s. Just have a look at any chart (Steve Keen has plenty of them) which shows the ratio of sectoral debt to GDP. The rise in Private Debt to GDP under Howard and Costello was astronomical.
“You parasitic lefties fail to understand that how was Costello etc supposed to run 5 or 6% surpluses w/o the opposition creating hard luck stories about scrooge stashing away the surplus. If Costello/Howard had actually run those kind of surpluses they would not have been in power for so long.
Any objective view suggesst they probably saved what was politically possible to save at the time.”
V – basic national accounting dictates that the Howard government surpluses arose from the private sectors desire to be in deficit by partying with credit like never before. It makes no sense to talk about a surplus (or deficit) as a stand-alone concept – if one exists then so does the other as the other side of the equation. The financial position of the government sector and the private sector are not seperate entities, they are Siamese twins. The reckless debt binge of the private sector in the decade leading up to the GFC and the long-running surpluses of the Howard government were merely two different aspects of a single thing.
I don’t do comparisons wrt how bad they both are.
I take no comfort from both sides being crap.
+1
The ALP came in when the GFC hit – when have he had really great years since?
We’ve had the boom which saved us from GFC-like recession. To go from near zero public debt to debt in excess of $250,000,000,000 is pretty chronic.
Some would say it was the Rudd stimulus that saved us from the GFC-like recession and not the glorious mining boom.
I thought that was largely debunked in a recent paper.
Who wrote the paper? The IPA? I’m sure I can find a paper from left-leaning think tank that says precisely the opposite.
Treasury.
Without the Rudd stimulus, interest rates would not have risen and the AUD would not have been as overvalued. It was an unnecessary and counterproductive policy.
The news was bad around the globe. They panicked. That’s all.
$250 billion yes… incurred by an $80 billion dolalr spend.
The remaining $170 billion was due to tax receipts collapsing, yet still having to pay for Howard and Costello’s middle-class welfare largese.
Otherwise known as a structural deficit. 68% of the debt we have is the coalitions fault.
YUP!
Links would be appreciated Rusty.
My point when you let loose the dogs of war in an election campaign simple stark imagery will reign – and Howard exiting with near zero federal debt contrasted with Gillard debt blowout says all many need to know.
Labor runs a deficit during both boom and bust cycles – truly defective.
JP Morgan’s economist recently noted that it would reduce Australia’s GDP growth by 3% to return to a surplus – and that is today, during a mining investment boom.
What is Swan suggesting the deficit needs to be to maintain growth? – banana republic here we come!
How many surplus budgets the the very responsable, great hero of the Liberal party, Sir Robert Menzies return in his 20 years in the PM’s office? Hint: it’s a nice “round” figure.
This is the thing – balanced budgets are NOT the neutral position as far as ‘sustainable’ debt is concerned – the neutral position is a deficit such that the debt/GDP ratio remains constant.
You could run deficits averaging trend GDP growth for a hundred years and never reach the mythical debt-induced crisis.
As in, leverage off debt like business does?
But this doesn’t hold sway with those who say we should government like a business…
Yup!
Surpluses strangle private sector wealth accumulation.
It’s big deficits in recessions (largely from the automatic stabilisers) and smaller deficits as growth recovers once unemployment has shown a consistent decrease.
The focus on surplus is highly destructive to the private sector accumulated financial assets.
This would be the red flag for the Torynuffs to come out with a line welding themselves to Euro style austerity….
Could they do that leading into an election campaign?
Euro style austerity = endless budget deficits.
Hows Spain, Italy and France going with their balanced budgets ?
Lets go for surplus !
Yep more debt fund our profligate consumption is the answer Those advocating more and more debt need to outline the end game they have in mind for us all
Flawse, have a look at yesterday’s links thread. I put up a link there I think you’ll be interested in.
thanks Alex good summary but no need to worry we still have some malleable mines and the Chinese have lots US printed paper
anyway as all modern economists know CADs don’t matter…..
endless budget deficits = growing public debt = future fiscal armageddon
How do you balance the budget when your economy is dying and unemployment is rising?
Painfully..
Short and sharp.
Then you get a recovery.
Otherwise its Keynesian debt fueled Japanese lost decade zombie banking madness.
What would you cut to balance the budget?
Oh you know the usual stuff.
All that defence, health, education, infrastructure, research and development, public service shit that we don’t need.
Piece of cake.
Thanks jelmech and the * crickets *
Bureaucrats.. 50,000 of them.
Assuming these bureaucrats are paid $1 million each and say another $300 million savings via operating expenses is only ever going to marginally cut the budget spending.. It doesn’t sound like a credible plan to balance the budget.
Now then, did you actually expect people to take you seriously??
“Otherwise its Keynesian debt fueled Japanese lost decade zombie banking madness.”
+1
mav we have built this distorted economy over 5 decades don’t have industry we should have industry We have lots of business we should not have. it all survives on growing debt…public and private and asset sales to foreign interests Those are the simpler facts the only way to keep it going is more debt,more asset sales, living off future generations.
so you want to take on more debt, more profligacy, even worse over_consumption…for what. To keep the ponzi scheme going…at greater and greater risk and less and less sustainabiliTy.
nobody claims the answers are now easy. as you know i believe there are none The answers lie back in time. However the first step is to clearly identify where we are at and admit that this whole gambit is to unsustainable
Thats true, flawse. I was just countering the furphy that austerity will lead to a balanced budget.
exactly flawse.
I’d trade short term pain for long term prosperity any day.
in Chinese we call it 良药苦口
How’s the short-term pain for long-term prosperity working for Europe? The longer they maintain the squeeze, the further recover into prosperity slips away from them.
“This is not counter-cyclical spending, it’s chronic”
+1
Its all irrelevant. Labor isn’t going to win regardless of their strategy on fiscal policy and balancing the budget.
Abbott and Hockey are going to bang on endlessly about surpluses until September (God help us!) but the moment they’ll get in they’ll do an audit, discover things are much worse than they thought, and abandon all pretense of running a surplus.
Does anyone seriously believe Abbott and Hockey are going to drive the economy into recession for the sake of a surplus? Not a chance! Australia is not Greece. We have very low public debt and no problems borrowing. FCOL Australia could raise trillions with Aussie govt bonds at the moment!
The whole surplus thing is just a political charade to win votes. Nothing more, nothing less.
I beg to differ – unless increasing govt debt results in increased national productivity it is money wasted.
Ultimately the debt has to be repaid.
I agree. ‘Do not borrow for handouts’ was a headline from earlier in the week that comes to mind…
So you are suggesting that in the middle of recessions when government deficits are highest we should cut unemployment benefits completely?
That is one of the clear implications of your statement.
Are you seriously suggesting that faced with a looming mining bust Tony Abbott and Joe Hockey will hold their nerve, cut spending hard, and drive the economy into a deep recession?
It. Won’t. Happen.
Of course it is. And as part of the “responsible fiscal managers” meme the Libs are running likely to be very effective. They need do little other than plaster the media with government debt at end of the Howard era contrasted with end of the Gillard era. People do think of the government budget as similar to their household budget and will be well spooked to see the blowout.
[Note they caveat all by making reference to "the books" and upon guidance as to our "true fiscal position".]
I agree it will be effective, but to compare government debt before and after the GFC is completely unfair, and such comparisons would be far worse in every other country. However, none of this matters because the average doesn’t know or care what’s happening overseas, all that matters is what happens in Australia.
Whether the Rudd stimulus saved Australia from a much worse recession in 2008-09 we will never know. What I do know is that this government will get no credit for it.
No one is saying the stimulus had no effect – it did – ask Gerry Harvey; ask a range of builders and associated suppliers. However, as DE has explained so well in the past, stimulus in China had a far greater impact. The reinvigorated mining investment boom took off ensuring healthy capital flows and record ToT, giving rise increased incomes across the board, etc – all detailed in the recent Gregory/Sheehan paper. Without the mining boom we quickly would have become like any other struggling economy in the developed world. Our resources proved our point of differentiation.
Stimulus in China certainly had far greater (positive) impact for you, and lets face it, that’s all you care about.
I don’t think stimulus in China did much for Gerry Harvey and residential builders, and it was a killer blow for those in non-mining, trade-exposed sectors (like me). Are you going to tell me the RBA has been cutting rates since 2011 because the economy has been going so fabulously?
Without the mining boom we would have looked much like New Zealand, and I’ll go out on a limb here, and predict that New Zealand will fare better than Australia when the commodity cycle turns.
Interesting you say that – for I am fairly sure the Kiwi central bankers are more actively trying to address major issues like currency overvaluation and house prices than the RBA boys are
I’m not sure your China thesis is correct because mining and its associated services are not huge employers.
The insulation and school building programs would, I believe, have kept far more people employed during the worst of the recession than the mining investment boom.
These projects kept people working in their local areas including regional towns saving a lot of the family disruption (and sometimes breakdown) caused by FIFO.
Even the consumer spending and gambling kept people employed in Australia in retail, import, transport, clubs and pubs, restaurants etc although a proportion (my guess is about 20%) leaked to China and other countries exporting to Australia.
Don;t forget a large portion of the capex for mining and processing also leaked offshore for plant and equipment and added to the trade deficit during the construction phase.
Funny you say that 3d1k.
The Libs facebook account is sharing a chart of surpluses/deficits from FY03 to FY12. Surpluses to 08 in proud Liberal blue, and deficits from then on in Labour red.
Have you been moonlighting for the Libs?
https://www.facebook.com/photo.php?fbid=10151492848697464&set=pb.13561467463.-2207520000.1361498312&type=3&theater
“… but the moment they’ll get in they’ll do an audit, discover things are much worse than they thought, and abandon all pretense of running a surplus.”
Heh.
“At the moment” being the key assumption there.
A sovereign debt crisis can change things overnight.
The point is our bureaucrats are living beyond their means, and sooner or later we will have to take a cut.
If the cars out of fuel does it matter who the driver is?
Lol.
Well yes, because you can’t just dump it at the side of the road and wash your hands of it….
Never been to the Pilbara eh?
Beautiful muzzer!!!!!
“If the cars out of fuel does it matter who the driver is?”
Absolutely!
Whoever’s driving it at the time it runs out will get blamed for the problem. Even if the previous driver(s) had ignored all the petrol stations on the long drive out into the desert.
The main reason we’ve been running deficits in the post-GFC period is not because of high public sector spending, which has not moved much at all as a share of GDP.
The main reason we run deficits is because the tax-take has fallen and it now fails to cover either recurrent outgoings or public sector investment.
We can do several things:
- increase taxes
- reduce recurrent spending (they’ve been doing some of that already)
- reduce public investment (which is probably a stupid thing to do, considering this is a driver of productivity improvements, but which has been happening anyway)
- change the finance mix on which public investment depends, so that it is not reliant on tax receipts
Probably, we should increase taxes, increase investment, change the finance model for investment funding and expand recurrent spending – especially in education and in other areas that improve our economic potential – all at the same time.
All of this should be done as the economy shifts into post-boom mode. We are a country with very many options available to us. It is amazing that so few of them are ever coherently and widely canvassed.
One further thing to note about the “boom” is that as the investment phase passes, the repatriation of future resource profits is going to add to our net income deficit for many years to come.
We have roughly doubled the structural net external income deficit. This means we have to find new ways to make the economy more productive and more efficient. This will require even more investment in both the hard and the soft components of our economy and we will have to increase its export orientation in non-resource related markets.
It practically goes without saying that we should tax a share of resource-derived export revenue flows. We are going to need the loot – perhaps, among other things, to help the finance the public investments that will be the base for our future prosperity.
Increasing taxes never leads to more growth, in fact the opposite usually occurs.
If the Government overhead is too high…. the obvious answer is start trimming the overhead.
Australia is one of the most over governed nations per capita on the planet… plenty of room to move.
Another idea is to start cashing in some of the Billions ‘invested’ in RMBS funds? lol
Increasing taxes never leads to more growth, in fact the opposite usually occurs.
That is not a given. It sounds like a mixed up laffer curve flight of fancy.
“Increasing taxes never leads to more growth…”
Huh? So having no tax and therefore government at all is the ideal state for growth? Wouldn’t it just be violent anarchy?
“Increasing taxes never leads to more growth, in fact the opposite usually occurs.
If the Government overhead is too high…. the obvious answer is start trimming the overhead.”
The Government share of the economy is not especially large – certainly not by historical standards. In any case, we need public investment in physical infrastructure, in education and in the institutional structures that will generate efficiency gains and opportunities for innovation in the future.
Public investment creates both the economic resilience and the practical means, opportunities and soft capital needed for economic adaptation. Really, this is the dominant imperative in a dynamic market economy – adaptation. We must equip ourselves for recurring change and we must increase our internationalist orientation.
The public sector is in a broad sense a division of the household sector. This sector frequently delegates to the Government those functions that cannot be performed on an individual basis, or which can be more efficiently and equitably performed on a joint or collaborative basis, and which the business sector either cannot or will not perform.
Whether this is “over-Government” or “market failure” is a matter of conjecture. But in any case, this small-scale, open, trade-reliant, very young and technologically-dependent economy needs an active public investment program. It always has done. At the moment, we are failing to meet many of our varied public investment needs and the result will be lower future economic performance.
+1.
Europe tried raising taxes in a recession, and it backfired.
Where was Spain’s budget target of 3% of GDP deficit ?
“We are going to need the loot”
“Loot” appropriate word choice…must have been subliminal
There are other avenues of revenue, GST being one and IPA recently offered a range of suggestions for curbing expenditure, some very reasonable indeed.
The IPA have a deeply partisan and ideological mission. They are just not to be relied on.
Loot…plunder…tribute…ransom…breakfast!
I’ve never seen the words “reasonable” and “IPA” in the same sentence before.
It is an ideology I have some sympathy for.
IPA spearheaded the current campaign against the more frightening aspects of Roxon’s proposed changes to the Ant–Discrimination Law. Their efforts appear to have rallied more thoughtful journalists and legal community to the cause. IPA prepared an excellent paper overview of the Henry Tax Review. IPA, acknowledging the worthiness of some aspects of the NDIS caution that medium to longer term the plan is beset with (a) expansion pressures and (b) unsustainable costs.
In modern social democracies where the march of government is ever greater it is a benefit to society as a whole to question the wisdom (and increasingly the propagana) of major government policies.
briefly So we tax exporters which long term reduces exports and we don’t consumption? why are we singling out only peolewhohave invested in long term difficult resource projects for extra tax
sorry i am battling with a tablet that i don’t know how to use
‘people who have’
We should tax resource revenues because they are non-recurring. The high-profit parts of the economy are overwhelmingly foreign-owned – I think 83% in the case of mining.
Adroitly done, resource sales levies wouldn’t necessarily affect export income, but they would retain more of the income in this economy. consider, banks find ways to extract the last penny of revenue out of their client base without killing off the banking business. We can find ways to withhold more of that non-recurring resource income for our future investment needs without harming the industry.
What about them groceries, or those evil I.T corporations ? Aren’t they foreign owned.
Special taxes for anybody earning ‘super profits’ above the long term bond rate !
Jono, we should run the economy on a more business-like footing, that’s all….try to maximize the returns for the proprietors and create new opportunities for ourselves.
In the 1850′s the gold rush in Victoria resulted in the mining industry expanding until it reached around 35% of Victorian GDP. A similar rush is on in WA. Mining and its associates account for about 35% of GDP. Inevitably, in the same way as the Victorian rush passed, this one will too.
In the 19th century, the great gains from mining largely stayed inside the domestic economy. Melbourne grew to be the largest city in Australia and one of the wealthiest on the planet. Melbourne, fueled with gold, became the locus of much of the capital later used to develop the rest of the country. But this time, once the rush quietens, we will find the income flows – the investment capital returned with its dividends – have not accumulated here. The cash will be in some other citadels. We should try to hold more of it in our hands. We will need it. Nothing is more certain.
“Jono, we should run the economy on a more business-like footing, that’s all….try to maximize the returns for the proprietors and create new opportunities for ourselves.”
Hear, hear!
And leave all social engineering out of it. If Govt subjected the bulk of it’s expenditure to needs/essentials based and CBA filters, we would be closer to that ideal.
There is very little social engineering going on in this economy, though there are the perennial tussles about “fairness”, and tension between unevenly-endowed competing interests.
I agree though: we would benefit from a far more rigorous approach on both the revenue and the spending sides of the public sector. From my perspective, this sector is a subsidiary of the household sector. It should be managed in order to optimise long-run benefits to households, to propel economic dynamism and opportunity, and to protect the common weal from sectional claims.
briefly Unfortunately you are not distinguishing between foreign vs domestic investors You are distinguishing between people who invest in mining vs other sectors. banks .are a bad example to pick. in fact what is happening there is that the whole economy is being destroyed to maintain their extreme profitability that no miner or farmer could possibly match.
What you are proposing with this is a reinforcement and further distortion of what we have now
flawse, all I’m suggesting is that it is possible to tax resource income in ways that won’t harm the industry but will increase the share retained in this economy. Considering resource extraction is a permanent feature of the economy, and is mostly export-facing, it is odd that the Commonwealth has never tried to develop a coherent tax framework aimed at capturing and managing some of those non-recurring income flows.
There is no settled public policy structure for this. There should be. There are very many economic and social implications that flow from mineral extraction and from the financing and ownership of resource projects. By contrast, the tax-treatment of the petroleum industry is completely non-controversial.
Exactly right. Thanks Briefly, good job on the whole thread.
Historically of course the Commonwealth has had little interest as the Constitution clearly places ownership of the minerals to the States. States raise royalties on the minerals and hence some capture of non-recurring income flows occurs.
It was the Labor government at the peak of the biggest commodity (io coal) boom in decades that swooped on the idea of capturing “super profits”. In their minds were no nice theoreticals such as non-recurrent income flows! They were fixed on ‘current income and now’.
This leads to the hasty and flawed drafting of the RSPT. A terrible tax. One that understandably upset the resource sector and one the sector was united in opposition to. A controversial start to what has continued to be a controversial foray into a raft of confused premises for extracting surcharge tax revenues from some miners. Step aside from the theories for a moment (which I agree sound attractive reasonable and well, theoretical). There is no theory underpinning the resource tax, it was a tax grab. The MRRT over time will accrue revenues to government. This, as occurred with the introduction of the PRRT, will accrue in increments over some years – again similar to PRRT.
Much responsibility for the very poor introduction and implementation of the mineral resource tax must lie with the government. Failed to negotiate in depth with key parties namely the States and the resource sector. In the hands of the more competent less hasty a modest fair system may have been possible.
PRRT controversy – recent changes to PRRT were strongly opposed by resource companies involved and I understand that the Minister has made relevant concessions.
Much responsibility for the very poor introduction and implementation of the mineral resource tax must lie with the government. Failure to negotiate in depth with key parties namely the States and the resource sector. In the hands of the more competent less hasty a modest fair system may have been possible.
Finally, I understand some work at ANU tackling the tax perspective, will be of interest to follow.
The dialogue coming from the Aus Treasury sounds more realistic than what we listen to in NZ. Our government’s obsessed with balancing the books to the detriment of anything and everything.