McKibbin destroys Budget (The Oz destroys its cred)

Go Wazza!

From The Australian:

AUSTRALIA’S government will have to scrap plans to reverse a $44.4 billion budget deficit in the next fiscal year and the country’s central bank will have to cut rates further as Europe’s economic problems worsen, said an influential former board member of the Reserve Bank of Australia today.

The new Australian budget announced last week “was very badly timed because it is a massive fiscal consolidation”, said Warwick McKibbin.

…”They’re just going to have to completely redo this.”

…Mr McKibbin estimates that this would be the equivalent of a 4 per cent fiscal contraction of the economy.

Not sure this is technically correct. The Budget looked more clever than this, with various tricks to ensure the spending cuts were largely directed offshore. The Treasury estimate was a 1% contraction. Nonetheless, it is looking spectacularly poorly timed, caught between the Greece and China slides. It will need to be redone as stimulus if things continue.

Update

It appears I was right. Here is the suddenly corrected copy from the national broadsheet (h/t Ben):

Mr McKibbin estimates that this may cut as much as 1 per cent from economic growth.

Houses and Holes
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Comments

  1. Alex Heyworth

    ” It will need to be redone as stimulus if things continue.”

    What about the automatic stabilizers?

  2. interested party

    “The Treasury estimate was a 1% contraction.”

    How’s their scorecard lately?

  3. I confidently predict it will be redone as stimulus after a few more months of RBA cuts. The government will let the RBA go first — to boost their vote — and then wrong-foot the RBA by *increasing* spending after rates have been cut. The public will love it. And Abbott might just have a fight on his hands yet.

    • Let me get this right, the Australian Government hasn’t even started to pay back the amount they borrowed to get out of GFC I, no economic reforms have been implemented to promote productivity gains and you reckon the Government is now going to abandon their budget surplus objective and borrow more money to try to beat GFC II (which will likely be longer and stronger than GFC I).

      If it happens, the $AUD will be as worthless as Drachma in 3 years time.

      • I don’t buy GFC I and GFC II. To me there is one ongoing ‘Deleveraging We Have to Have’ GFC as we have borrowed too much from the future. Governments can borrow and stimulate, but they are just delaying inevitable.

        • +1

          Greconomics’ alternative would be the austerity that got the Greeks to the position they are currently in.

  4. It appears the Oz has now changed the headline to “1% cut to economic growth”.

    Someone didn’t like the 4% contration headline.

    $44bn being pulled out of a $1 trillion economy…

    • Apologies HnH, I clicked on the link and didn’t see the last paragraph of your original post. You were indeed correct.

  5. Lighter Fluid

    I like the tone of that article, reminds me of a hopeful student submitting an essay to the professor (which they thought was brilliant). Professor reads through, shakes head, sends back with a note on it saying “Entirely wrong. I’m afraid you just have to redo this.”

  6. Yep No worries mate!

    -Reduce interest rates,
    -ignore inflation
    -fiscal stimulus,
    -restore retail and housing That’s what the country runs on

    -Get imports up while exports and export prices are crashing

    -Continue top make production more expensive here through expensive takes, stupid WHS laws and indefensible IR conditions

    -Run a super high CAD

    No worries…let’s just sell a few more of the few mines we have left and Ag land at what will be now super cheap prices

    What about our children and future generations comes a lone voice??

    Answer from everyone Who gives a rats about that sort of stuff???? Screw them!

      • Alex Heyworth

        And after we’ve sold off the farm, the mines, the roads, the airports and the children, we can all get jobs as domestic servants for the rich asians who will then own the country.

          • If my memory serves me correctly, it was Lee Kwan Yew who referred to Australians as the “white trash of Asia”.

            Looks like he might have been slightly ahead of his time.

            (Apologies to Mr. Lee if my memory fails me)

          • ADDENDUM:

            Just checked – it was Lee Kuan Yew – and the exact quote was:

            “….poor white trash of Asia”.

            Sheesh! The bloke was even smarter than I gave him credit.

        • At least the rich asians (refer other post this morning) may not see prohibitively expensive real estate as their masterplan for unlimited prosperity.

      • Sorry poid…I wasn’t thinking !! 🙂

        NOt a lone voice then! Thanks!

        I would really liker to hear from those who want the low interest rates and fiscal stimulus…
        What is their end game?
        When is it all going to stop?
        Stop it must so how and when?

        HnH? McKibbin? Parko? Anyone? (Except those who think we can just print up the paper money hand it over and all the problems are solved!)

        • Easy, Used the cheque to organise migration to other country while I still can sell the RE to someone….

        • “Except those who think we can just print up the paper money hand it over and all the problems are solved!”

          Why not? It works for the U.S. and Britain. They are even using printed up money to buy our assets as well as those of other countries.

          • Australia is not permitted to manufacture USD – that is what a significant slice of our external debt is denominated in.

            Greece would not have a problem if they were permitted to manufacture Euros.

    • Jumping jack flash

      It’s the Australian way!

      why not offshore some more manufacturing while we’re at it?

    • “What about our children and future generations comes a lone voice??”

      Kick them while they’re down.

    • DouglasMEMBER

      As I pointed out about a year ago in contrast to the views of the RBA, Treasury, Wayne Swan and most economists the macro conditions in place were very deflationary.
      ie
      -A$ 30 to 40 per cent overvalued on a PPP basis
      -M1 run at nearly zero for 3 years
      -residential property way overvalued and participants in general highly geared into it
      -Government (Fed and State) and council profligacy had to come to an end
      -Commodity prices likely to come off
      -interest rates for borrowers at nearly twice the rates of comparable countries.
      There is a lag effect of about 12 months in the effect of these factors and so batten the hatches and watch out below. I woould predict that the govt RBA and Treasury do not have the stomach for real asset deflation so they will one way or another let the dollar go and flawse you are right to worry about goods inflation as the ridiculous policies have wiped out the producers and rewarded the consumers,

  7. The Patrician

    The heading wrongly assumes the OZ has cred available to destroy.
    Ran out out that a long time ago.