Swan is right to keep cutting

Speaking to the ABC this morning, Treasurer Wayne Swan maintained his commitment to a 2012/13 budget surplus despite the growing realisation that revenue is going to fall well short, as forecast here weeks ago:

WAYNE SWAN: Well it’s a forecast from Access Economics. I can’t say that it’s accurate.

What we are going to do is go through the normal process that we do as we prepare what is known in the jargon as our MYEFO which we publish towards the end of the year.

But what I can say and I have been saying now for months is that there will be an impact on our growth.

We can see that in the forecast put forward by the Reserve Bank on Friday. The Reserve Bank’s forecasts are somewhat different to Access Economics but they both point to slowing growth in 11/12 in the Australian economy. That does flow through to revenues.

But we’ll have to go through our normal processes in the MYEFO process, put all that together and then we’ll publish it.

SABRA LANE: Are you still going to stick to that promise?

WAYNE SWAN: Well we are certainly determined to bring our budget back to surplus in 2012/13. We think having a very clear and consistent fiscal policy is important.

When you have your budget hit by revenue write-downs such as I think we are seeing at the moment, that does have an impact and that means that tough decisions will have to be made in the context of the budget.

SABRA LANE: Those tough decisions, will you look to cut Government spending further or will you look at tax increases? Are they the sorts of things, options you are examining now?

WAYNE SWAN: Well because of the write-down of revenues we will certainly be looking for savings elsewhere in the budget.

In past budgets we have found over $100 billion worth of savings. We’d go through that process again. It’s something that we do every year in the lead-up to our updates and in the lead-up to the budget. We’ll be doing that again.

But we are very determined to have a very clear, effective fiscal policy. That very clear and consistent and strict fiscal policy has made room for the Reserve Bank to lower interest rates in recent weeks. That’s been very important and it’s important as we go forward.

Yes, it’s important and Swan has just confirmed that more rate cuts are coming. If the government is going to persist in its drive to surplus then the easing is going to have to come from monetary policy.

There’ll no doubt be lot’s a screaming about this today and tomorrow as some manifestation of a “surplus obsession” but Swan is right. Here are the two charts that tell you why. Recent bank CDS prices:

And over the longer term:

This is the price that investors have to pay to insure the bonds they buy from Australia’s major banks. As you can see, the price has been wildly volatile lately and has tracked well above GFC levels following European woes, no doubt because our banks owe them some $300 billion with an associated high rollover risk. As John Laker, Chairman of APRA, said in that body’s annual report today:

The deteriorating environment also poses two particular challenges for the ADI industry. The first is the danger of a widespread dislocation in global funding markets, in a rerun of October 2008. Risk aversion has intensified in bank funding markets in the euro area, where credit spreads have widened considerably, and it appeared to be broadening. The larger ADIs in Australia that tap global funding markets have very little direct exposure to the European banks and sovereigns under pressure but they would not be immune if, as in October 2008, risk aversion tarred all internationally active banks whatever their underlying quality.

Unlike the powers that be, I think that banks are responsible for both halves of their balance sheets – assets and liabilities – so to me their “underlying quality” is questionable. However, I do agree with Mr Laker that if the closure of global wholesale debt markets to Australian banks continues then we have a very big problem for which the only real solution is a return of the government guarantee. For that guarantee to be effective, there can be no suggestion that the national credit rating is at risk, therefore you can’t be stuffing around with surplus forecasts the moment you get a bit of volatility in your commodity exports.

Given the European recession has barely begun, I expect all of these pressures to intensify. Ultimately, in fact, I do expect the government to abandon its push for surplus next year, however, not until the European recession more clearly takes down Chinese and US growth, at which point, as the RBA put it last week in the SoMP:

…the economy would still be affected through falls in asset prices and weaker household and business confidence. Commodity markets could be expected to weaken and growth in domestic incomes would be lower. While there is a large pipeline of committed LNG projects that would be expected to continue, some planned expansions to coal and iron ore capacity could, in a downside scenario, be delayed.

In other words a rerun of 2008 with a mining led blow to growth (and possible recession). In such a scenario, fiscal easing in the form of automatic stabilisers and some modest stimulus will make counter-cyclical sense.

Comments

  1. respect my authoritah

    Of course it’s a surplus obsession.

    Can you explain your apparent (to me at least) differing views on the US obsession with fiscal cuts and the Australian fiscal obsession with a surplus.

    In both cases the policies being envisaged will damage growth. You’ve previously cited a 1.5% hit to US GDP growth (that’s debatable but let’s run with it) in 2012. So, if — and it is a big if — Swan gets a surplus in 2013 what with the % hit to GDP growth be?

    • Australia is a small externally funded economy with a housing bubble. The Budget is the key stone in ensuring that that edifice doesn’t come tumbling down via a deflationary series of debt downgrades.

      The US is also externally funded but via its government and it is the global hegemon and reserve currency issuer. It can issue debt ad infinitum (or at least until some credible
      alternative reserve appears). Plus, it’s bubble has already burst and its private sector is delvereaging and needs the support to do so.

      I am not suggesting that our private sector should ratchet up borrowing to offset fiscal cuts. In my view the RBA should pace cuts to keep credit growth around current levels.

      In short, the two are different beasts.

      • “…that’s why I’ve been arguing all year that that the two speed economy is a pile…”

        HnH – thought you were a prime promoter of the notion of a two-economy!

        FWIW the RBA comment on likelihood of future resources infrastructure investment quite close to the mark, although there are some ore projects that I would expect to go ahead except in the most dire circumstances, others I would expect to be delayed. Nature of the game. If that occurs as I have said before most unfortunate that global events stymie our resources boom, well at least for a period of time.

      • oops

        just saw my comment above and meant to say

        HnH – thought you were a prime promoter of the notion of a TWO-SPEED economy!

      • Who cares what the hit is to GDP if Swan presses on with fiscal sanity? It’s irrelevant. If I stopped maxing out my latest credit card on a monthly basis, yes my living standard would take a hit. But it’s an illusion in the first place: I can’t actually afford my standard of living. Likewise, Keynesian GDP pump priming not a luxury the Western world can afford. Western government finances are in a terminal state; a borrowing binge to inflate GDP figures over the next year or two is a just a postponement of reality. When did living within one’s means become such a taboo?

      • DE thinks we live beyond our means. The CAD says we live beyond our means. The private debt stock combined with 22% of GDP government debt says we live beyond our means. And all of that with the greatest export boom in Australian history that’s been running for eight years says we live WAY beyond our means.

        MMT is useful but being overly committed to it blinds you to how markets actually work.

      • The discussion is about the governments fiscal policy. On that basis I interpret “we” to mean the government. If that is not what you or other commenters mean when you say “we” then fair enough, we are talking apples and oranges.

        The private sector “we” is certainly over levered (into housing) — living beyond its means if you prefer.

        The national “we” has been running a CAD for 50 years. One of the reasons we have a CAD despite booming mining is because the private “we” is living beyond its means.

        The government “we” is NOT living beyond its means. Matter of fact I’m not sure that living beyond its means in a government context has any meaning. We are not an EU nation. What do people actually mean when they say a government such as Australia (or USA, Japan, UK etc.) is living beyond its means?

        MMT is useful but being overly committed to it blinds you to how markets actually work.

        MMT by definition is merely a description of how things work. It is not possible for a description of how things work to simultaneously blind you to how things work (assuming normal brain function). Talk to DE.

        In any case my comment was not directed at the state of private households (who I agree are living beyond their means).

      • respect my authoritah says: November 7, 2011 at 1:57 pm

        “The discussion is about the governments fiscal policy. On that basis I interpret “we” to mean the government.”

        What is our government if not its citizens? Where does our government get its money from if not from taxes on our wages or borrowing against future taxes of our future wages, or drawing down on accumulated past taxes?

        You speak as if the government is entirely divorced from its constituents and while I can understand why, I think it is fallacious nonetheless.

        Looking at it in a different way – if you give out a mortgage to a person with no income, no job, do you expect that loan to be AAA-rated? No.
        If you gather 100,000 of these mortgages together, is the resultant MBS an AAA-rated security?

        Similarly, if the people of a nation are on balance, over-indebted, barring its ability to draw down on past savings, how can the government, the amalgamation of all those over-indebted people, be anything but over-indebted?

      • Pariah,

        The links above explain the monetary operations under our fiat system.

        What you are describing in your comment is the system under the gold standard which ended 40 years ago.

        No point in adding more. The links explain it all far better than I can.

        Additionally there is the link to Billy Blog on this websites Blogroll that contains abundant resources.

      • respect my authoritah
        November 7, 2011 at 5:10 pm

        Thanks for the links and all I can say is look where it has brought us!

        How is “The currency unit created by the state via deficit spending can only be extinguished by payment of taxes” and different to what I have said?

        And the four dot points under ‘Functional Finance” appear to describe exactly many of the problems we face today.

        I just don’t understand how anyone can say that a (democratic) government is not the sum of its constituents.

      • What do people actually mean when they say a government such as Australia (or USA, Japan, UK etc.) is living beyond its means? They mean that the present value of future obligations exceeds the capacity for governments to meet those obligations. Economies have a certain productive capacity. When governments commit to expenditures that exceed the future productive capacity of the economy, that government is living beyond its means.

        I really hate this notion that governments can spend as they please simply because they can raise taxes/print money ad infinitum to meet spending commitments. Raising taxes is a self-defeating exercise. In the long run a liberal tax regime is essential to ensuring that an economy can continue to generate wealth. Nor is destroying the currency a viable solution to revenue shortfalls.

        That there is any denial of such simple logic speaks volumes about the state of the economics profession today.

      • When governments commit to expenditures that exceed the future productive capacity of the economy, that government is living beyond its means.

        On the contrary I would say that we would expect inflation in that case. But maybe we can agree with a statement that governments expenditures in that specific example would be inappropriate.

        The key part of your comment references some limit of the productive capacity of the economy. My comments relate to policy action below that productive limit — which is currently the case for much of Australia.

      • Look up the definition of the word contrary. I would also expect inflation… as a consequence of the government living beyond its means. Unlike you, I merely reject the assertion that unrestrained inflation is acceptable.

        My comments also pertain to the likelihood of that action leading to intolerable burdens on future generations (or indeed the present one in a few years time), as demographic pressures increasingly strain government finances. And before you start pontificating on how sound Australia’s public finances are, do a little research into Ireland. Or have a chat to the folks who cheerily sold CDS on Greek sovereign debt at 11bps in 2009. Swan should be congratulated for having the foresight to recognize how quickly things can go south, I only hope he is as vigilant as he implies.

      • The nesting of these comments is a tad confusing but if you are saying (i.e. responding to my comment above) that the current fiscal policy will slow things down then I agree.

        So despite you seeing this as inevitable you surely therefore do not agree with it??

  2. Even if they did achieve a surplus, with the NBN expenditure off-budget it would only be a pseudo-surplus.

  3. Negative gearing is a great place to start cutting. As are CGT concessions. Or how about not doubling the IMF contribution? Perhaps they could regulate marijuana and tax it? Limiting the NBN to 80-90% of the population (sorry country folk)?

    Unfortunately, the Government will likely play from the Republican rule book of cutting education, health, welfare etc. spending before anything else. The nursing negotiation farce was quite third-world-style shocking to me.

      • NG or CGT can be seen as subsidies for investors that should be cut. Or they can be seen as foregone revenue that could be reclaimed. Either way, they could be phased out over 3-4 years.

      • I’m familiar with the concept of “tax expenditure”. However, it is really just a euphemism. It is really, as you say, foregone revenue.

        I’m not, BTW, arguing against the removal of tax concessions. They are certainly an area the government could look at. Just that it helps to be clear that the effect of removal is more government revenue, not less government expenditure.

  4. Cutting government spending will actually be good for growth in the medium & long run.

    In the US, government spending has a negative multiplier.

    The problem with GDP is that it counts all forms of spending as equally valuable. But it is only value-added spending that contributes to an economies growth and wealth.

    Much of government spending is not value-adding, to say the least.

    • Not all government spending is equal, that is for sure. We can only hope that the government focuses its razor on the areas that add least value. Somehow, I don’t think this is what will happen.

    • I’d be interested in seeing where the figures are which show that government spending, specifically, has a negative multiplier.

      Do you have any links to share?

      Cheers.

  5. only real solution is a return of the government guarantee
    .
    We still have $114.5 billion yet to be rolled over from the last one!
    .
    Banks want less government intervention ..we should give them just that.

      • Well, the banksters already got their covered bond funding (~$150 billion), thanks to change in the decades old Banking Act. And domestic deposits are now covered under FCS. So deposit sources of funding is already guaranteed and some international funding is guaranteed under the covered bond.
        .
        Anyway, the banksters and their regulators insist that they have moved to more reliable sources of funds and they are the bestest managed and regulated banks in the world. Let us test them on their word.
        .
        Also, why the hell should we guarantee offshore/overseas bond holders?? The next time round, I say we all go Icelandic on them and tell them to “come and get it”..

    • Maybe the government shouldn’t be offering any guarantee until the banks come begging (publicly) for one.
      At the very least the government could then exert a bit more influence over how the banks manage their affairs and perhaps even extract a fair dividend for the tax payers this time.

      Personally I don’t think interest rates should ever drop below, say, 5%. If you can’t afford 5% then you shouldn’t be borrowing money in the first place, so any RBA easing is just another case of the prudent bailing out those that aren’t.

      • Credit is just borrowing from the future to pay for today. I don’t know about everyone else, but by my reckoning the future should be more valuable than the present and it should be priced accordingly. Cheap money just devalues the future. The last few decades of this, seems to be what confronts us now.

      • “Maybe the government shouldn’t be offering any guarantee until the banks come begging (publicly) for one.”

        With emphasis on publicly to wake people up to what’s going on.

  6. Remember the basic economic identity for GDP.
    GDP} = C + I + G + (X – M)
    or simplified
    GDP = P + G +/- E

    See:
    http://en.wikipedia.org/wiki/Gross_domestic_product#Determining_GDP

    If the government is saving (reducing deficits)and the external balance is static, unless the private sector is increasing spending to offset the Government saving, GDP must fall (and 2 Quarters fall = recession).

    This is not debatable – it is the very definition of how GDP is calculated.

    When you look at the leverage of the household sector (Steve Keen’s work emphasizes we are as bad or worse than the US ) then there is no real prospect of private growth unless China/Japan keeps taking more or paying more for our exports – and that merry go round seems to have just stopped and doesn’t help probably 70% of the economy measured by number of employees.

    Given the high AUD and two speed economy and that the low speed economy is probably in recession already and increasing European austerity from Italy having to tighten, the outlook is not good.

    The only saving grace is that total employment in the US continues to grow.

    It’s a high risk time in the Australian stock market and AUD. Some long term views will make money, some will lose and probably some will be whipsawn several times.

    • Employment may be growing in the US but its really tough for it to still be decreasing. 15% of them are on food stamps! However, its not rising fast enough to make up for population growth so they are essentially going backwards. I read on ZeroHedge that to return to pre-crisis levels by 2016 election time, there needs to be about 240-250k jobs created each month. They are nowhere near that. Certainly not a V shaped recovery. Future prospects aren’t very good either.

    • +1

      a move to surplus in the current cycle is one of the craziest F policies to come out of Canberra for awhile. The sad thing is it is basically bipartisan, I’ve even heard the F greens on board. We are truly governed by lunatics.

      • Who’s angry? It wasn’t typed in anger and certainly wasn’t meant to be read as angry. I’ll add some smileys next time if that makes it easier. 🙂

        Further north in this comment thread you appear to have conceded that a move to surplus will slow growth.

        So what part of moving to surplus at this stage of the cycle is wrong?

        Or do you mean that my assertion that this is bipartisan is wrong?

        You comments in this thread seem to lack consistency/clarity. 🙂

      • only from the point of view of obsessive MMT. My explanations make perfect sense if you acknowledge that capital markets enforce a budget discipline, which is self-evident at the moment. Your comment about the gold standard says it all. You seem to think there’s absolute monetary discipline or none at all. The truth is in between.

      • I draw your attention to the comment of mine you were responding to — which you claimed to be angry.

        I said that a move to surplus was crazy. My reason for saying it was crazy is outlined in other comments, namely that it will slow the economy at the wrong time of the cycle given all the other problems going on. You appear to be agreeing with that in your comment http://www.macrobusiness.com.au/2011/11/swan-is-right-to-keep-cutting/#comment-105002

        If you don’t agree that cutting spending and getting to surplus over the next 18 months is crazy then do you believe that the private sector will grow sufficiently to offset the fall in G?

        Explorer makes the case pretty clearly http://www.macrobusiness.com.au/2011/11/swan-is-right-to-keep-cutting/#comment-104973? simple algebra. Save your energy for other things. Picking an argument on this is pretty silly — especially since you have previously agreed about the effects of spending cuts in the foreseeable future.

        As for the red herring about the capital markets, it is not the capital markets that are driving this “surplus” policy — and as I indicated it seems that all sides of politics think a surplus is desirable.

        I have made no comments about monetary discipline — more red herrings — for the simple reason that getting to surplus is neither disciplined nor undisciplined.

        (FWIW Bill Mitchell has some good stuff on the capital markets demanding deficits last time we got to surplus)

        🙂

      • I’m starting to comprehend your argument now. Perhaps you ought to copy and paste into an email and flick it over to the Irish. They’re mad to be cutting at a time like this!

      • They have to save money for bank bailouts in the future. We don’t want to become Ireland as it is in nobody’s interest to bail us out.

      • We do not have to save any money to bailout the banks at all.

        I’d rather legislation that allows the government to pay the creditors of the bank a princely sum of $1 for 100% ownership (and I say this as someone who owns bank shares outside of a Super vehicle) in the case of enduring insolvency.

        Australian depositors up to 15 times the average wage would be guaranteed.

        It would be cheaper for the government to recapitalise the bank, then sell it off.

      • “Australian depositors up to 15 times the average wage would be guaranteed.”

        Instead of average wage, why not make it the average of the last five years of declared taxable income of the person making the claim? The government won’t have any trouble getting those figures from the ATO.

      • A lot of 70+ years Australians plus may have large cash deposits and haven’t worked in the previous 5 years.

      • A budget surplus is not ‘saving’ for the future, despite the neoliberals would like us to believe. A deficit/surplus is a flow, not a stock.

      • Agree with respect. For the federal govt to try and run a surplus in an environment of slow or falling private credit growth is nuts, sadistic even, as it will put us into recession, throwing hundreds of thousands out of work, and bankrupting many a business, all for the sake of satisfying some fetish for surplusses.

      • I disagree. Small government and less crowding out is exactly what we need.

        If you believe government should deficit spend to keep up employment, the what’s wrong with the government paying half the unemployed to dig holes and the other half to fill them in again?

        If you believe that government should deficit spend to prop up lack of private spending, you’re accepting the notion that government is a better allocator of resources than markets. The government has no resources other than what it takes from you or me in taxes.

        By supporting deficit spending, you’re saying that the government should take more from us (either through immediate taxes or future taxes [borrowing]), in order to spend on our behalf, where we as private citizens have, for our own reasons, elected not to spend.

        Instead, government should just lower taxes and, bar the provision of the bare minimum public utilities and services, p*ss off and let the market decide.

      • If you believe in ‘crowding out’ then please explain Japan for the last 20 or more years – rising deficits, rising saving, zero interest rates, positive investment.

        It’s not believing that government is a better allocator of resources, but acknowledging the fact that the private sector does/can not always allocate all resources. And so the government is able create employment until such a time that the private sector is willing/able to employ again.

      • Japan is not an example we would want to follow. Falling living standards over the past 20 years doesn’t really grab me.

        Look, it is not about GDP, it is not about deficits and surpluses, it is not about the government allocating resources that the private sector is unable to use.

        What it is about is using the resources we have in the most productive way, to produce what people want. More government and more public servants is not what people want. Government spending is of extremely dubious use in producing goods and services that people want. Better to leave the resources in the hands of the private sector and get out of the way. The market will find a way to give people what they want. If it doesn’t, it is usually because of government interference in market processes.

      • Exactly what Alex Heyworth has said.

        I don’t really know what’s been happening in Japan for the last 20 years. I’ve only been to Japan once for a short holiday and I couldn’t really see anything wrong with their society there except possibly they work too hard. I didn’t really see anything terrible going on there, and tbh it seems like a nice place to live… They’re world leaders in technology and cars and as far as I know, they’ve come a long way since WWII, I don’t really see what the problem is? Please educate me (serious question).

        You’ve contradicted yourself in your second paragraph. Government ‘creating’ employment is an allocation of resources – it is the allocation of labour by the government. You are saying that where the private sector is refusing to ‘create employment’, the government should step in.

        That is what I disagree with. It is not the role of government to ‘create’ employment because that is the same as the government allocating valuable labour resources. Corollary to that is the government understands the value of that labour and understands how best it is to be used. Also, it requires government take money from those who are productive to create jobs which are not required for those who are marginally unproductive.

        You’ve cited no reason for why the government should be doing that, aside from simply to ‘create employment’. Then, you’d be ok with government having people dig holes and hide notes there, and have the private sector dig them back up again later?

      • “Look, it is not about GDP, it is not about deficits and surpluses, it is not about the government allocating resources that the private sector is unable to use.”

        It is about the resources the private sector is unable to use. Wealth is maximised when idle resources are used. Idle human resources are wasted, they currently do not contribute to product, and their skills atrophy due to being idle as well as the mental anxiety associated with being idle.

        This is a waste of resources, to make them lay idle, however they are not something the private sector can ‘price’ in due to its very narrow scope of measurement.

        It is a failure of private enterprise because it is too limited in its ability to measure the value of this wasted resources.

        The waste, while debating whether it is an economic waste, is definately a waste as far as society goes, something economics or finance can not accurately measure.

        “More government and more public servants is not what people want. Government spending is of extremely dubious use in producing goods and services that people want”

        The private sector could never deliver universal secondary education, or universal healthcare. It is dogma which keeps espousing these myths, and it has no place in adult discussion.

        “The market will find a way to give people what they want. If it doesn’t, it is usually because of government interference in market processes.”

        Keynesian economics has been basicalyl abandoned since the 1970’s. Fomr post WWII to the 70’s, no major economic dislocation occured.

        Since then, we’ve had 1987, 2000 and 2007 in the neo-classical era.

      • Edit my above comment:

        Exactly what Alex said apart from his falling living standards bit.

        I don’t know about that so I can’t really comment.

        I would question whether their living standards have actually fallen though. From what I saw on my very brief time there, they seemed to have pretty damn high living standards, and I’ve lived in Australia all my life. Their transport was awesome, the food was great (if a little expensive), great service, nice shopping places and there was fast internet wherever I went.

        If life in Japan now is the result of 20-odd years of ‘falling living standards’, maybe Australia needs some of that…

      • Rusty Penny
        November 7, 2011 at 5:15 pm

        “It is about the resources the private sector is unable to use. Wealth is maximised when idle resources are used. Idle human resources are wasted, they currently do not contribute to product, and their skills atrophy due to being idle as well as the mental anxiety associated with being idle.”

        Wealth is maximised when idle resources are used productively and efficiently.

        I don’t think that merely use of available resources creates wealth. For example, burning oil into the air is a use of a resource, but it doesn’t necessarily create any wealth, except insofar as the rising price of remaining oil can be regarded as ‘increasing wealth’.

        In the same way, employing people in jobs that are not needed which pay a high minimum wage does not ‘create wealth’. In fact, it destroys it by first, wasting resources and second, by sucking resources away from needs that people really do want fulfilled and at the right price.

        Idle resources does not necessarily represent wastage. It depends on price. If the cost of employing the idle resource results in an enterprise being unprofitable, it is better for the resource to be left idle until someone can use that resource profitably, or until technology is developed so that the resource can be used profitably. That is why the market and price is so important.

        And since when was tertiary education universal in Australia? Last time I checked, not everyone who wants to go to uni does or can. I don’t think tertiary education should be universal, especially not at the prices universities currently charge for them. If it were so, you’re basically forcing people to start their working lives with $25k HECS debt, plus a degree that doesn’t add anything to their employability because everyone else has one too.

    • Do we need government to expand spending so we end up like the PIIGS of Europe ?

      It seems not one dollar of stimulus spending creates value-added and sustainable growth.

      The money gets thrown at shovel-ready projects with a priority on spending it quickly…sure GDP numbers will look nice for a while, but GDP alone doesn’t reflect an economies debt.

  7. $100b of savings = $100b of spending cuts.

    Doesn’t look good for the Canberra economy or Canberra house prices.

    If only the government would get redundancies right and remove the no hopers rather than letting the bright and capable take the cash and flee.

  8. “…fiscal easing in the form of automatic stabilisers and some modest stimulus will make counter-cyclical sense.”

    What about postponement of carbon tax – based on your recession scenario would you add the elimination of this cost to businesses and households to your measures?

    Makes sense.

      • Postponement. For five years. Let’s face it, postponement (or abandonment) of the carbon tax will make zero difference to ANYTHING in global terms, be it in the present or in the future.

        Few countries will adopt similar measures, for those that do various carbon schemes and permits negate it, the world will keep producing and consuming and life will go on – regardless of one small economy’s carbon tax, stated intent flawed in conception by a multitude of omissions and exemptions.

        An unnecessary impost at this time.

      • As one of the highest per capita emitters of greenhouse gases, we would be negligent if we did not make some effort to reduce our own emissions.
        Our ability to argue for greater cuts worldwide would also be hypocritical if we did nothing ourselves.

        I agree that the current scheme is flawed. In my opinion it is overly generous to some of the highest emitters and the concessions limit the overall effectiveness, but at least it is a start.
        Any delays, postponements or scrapping the scheme entirely, would just be kicking the can further down the road and burdening future generations with even greater challenges.

        Recent events around the world have shown what happens when you kick the debt can down the road. However, debt and money are just promises to provide goods or services at a later date and can be forgiven or disappear with the stroke of a pen.
        The problems related to emissions on the other hand are not so easily dismissed and they won’t go away.

      • “…problems related to emissions on the other hand are not so easily dismissed and they won’t go away.”

        Agree – the carbon tax will be in absolute global reduction terms totally ineffective. May as well scrap it!

      • In response to the last comment by 3d1k.

        The same argument, that my contribution/say/obligation is so small that it doesn’t matter, has been used by people when arguing against voting and and paying tax. i.e. why should I vote as it is only one vote of millions or why should I pay tax as my contribution is so small compared to the billions raised.

        The current government shows you that each vote counts, and that government can only implement policies where the revenue exists to do so.
        The contribution of each of us counts, no matter how small.

        It counts even more when our inaction impacts not just upon us or our neighbors but upon successive generations.

      • In your recession scenario hardly likely to give any country a reason to ‘stop’ (which of course in totality is impossible…).

        Nonetheless you evade my question! Would you consider a postponement of the carbon tax as a sensible measure/assistance given your views above.

        Or does ideology reign supreme.

      • Beware of Greeks Mining fanbots bearing Gifts compromise “solutions”.
        .
        This is just a Trojan Horse to delay good public policy so that the richest 1% can loot our country and scoot off into the sunset.

    • What about postponement of carbon tax – based on your recession scenario would you add the elimination of this cost to businesses and households to your measures?
      .
      To anyone wondering why Deloitte Access came out with this report warning the government WILL miss its target and not to aim for one, THERE is your answer right there.
      .
      It is a subtle PR push to establish a narrative – Abandon the carbon tax and save the budget surplus!!.
      .
      Next thing you know, Deloitte Access will run their magic crystal balls and come up with yet another report saying abandoning the carbon tax will precisely deliver a surplus! Surprise!!
      .
      Makes sense.
      .
      Yes.. to a PR Bot who seem to believe his own propaganda. To me though, it had all the subtle tap of a sledge hammer.

  9. ceteris paribus

    From another perspective, economically “right” or “wrong” may have little to do with it.

    The fix for a cosmetic surplus is already a done deal as a matter of political survival.

  10. Ronin8317MEMBER

    As long as Tony Abbott is the opposition leader, the ALP will run a surplus for the 2013 election. This is the political reality. Leave economic argument aside, look at the politics.

    If Labor runs a deficit, the Coalition will attack the ALP for mismanaging the economy. For most voters, ‘deficit bad, surplus good’ is their mantra. Furthermore, the Coalition will not be pressured into running a surplus immediately.

    If Labor runs a surplus, the Coalition will loses one major point of attack. In the expectation that the Coalition will win the election, it’s in ALP’s interest to make governing as difficult as possible. Abbott made a ‘blood pledge’ to roll back the carbon tax and MRRT, which will leave a huge hole in the budget. From Abbott’s antics, he still doesn’t understand how the ‘off the book’ balance sheet accounting for NBN works. He is under the delusion that if he cancels the NBN, those money can be used to generate a surplus >_<.

    A new Coalition government will then be faced with two option. Either continue to run a surplus and watch the economy go into recession with savage cuts, or run a deficit and watch their own political base self-destruct. Either of the option will lead to ALP returning to power in 2016.

  11. HnH is correct in my opinion. Fiscal tightening is exerting a dampening effect on private sector demand. This is working in the same direction as household behaviour, which is lifting savings and quelling demand for new debt.

    Whatever the politics, the Government has used 2010-11 to apply genuine firm-money policies, and this will really help insulate the public finances and the economy generally against the shocks that are sure to arrive in 2012.

    Incidentally, tight fiscal settings and firm monetary policy have overlapped at a time when our terms-of-trade have been at record highs and the USD has been depreciating. It is therefore no wonder that the AUD has been at such levels. Perhaps when monetary and fiscal policies are eased, also coinciding with a slump in our t-o-t, and the USD appreciates, the AUD will come down again.

    For those who are always hoping the AUD will decline, my usual nostrum is…”Sure, the AUD will come down again one day, but, you know, whenever the AUD drops, it’s always for the wrong reason”, by which I mean we can expect currency depreciation to herald trouble. 2011-2013 will be no exception to this rule.