From The Australian comes the following:
Tony Abbott said Labor could never be trusted to return the budget to surplus.
”There is further evidence today from Access Economics that this government is never ever going to deliver even a dishonest surplus let alone the honest surplus that the Australian public deserve,” the Opposition Leader said.
”The trouble with a government that cannot get the budget back into surplus is that it keeps putting more pressure on households because a government which is out there borrowing $20 million a day is always putting unnecessary pressure on interest rates.”
A couple of points. There is no doubt that Labor has pursued a surplus pledge using every trick available to the Budget manipulator, from pushing out aircraft purchases, diminishing international pledges, to seizing lost funds. The question is is this a bad thing?
Absolutely not is my view.
The political and media debate about the surplus exists in some strange fantasy world in which Australia is occupied by unicorns, fairies and a private sector that is immune to the dominant economic theme of our times: deleveraging.
I don’t dispute the wisdom of aiming for surplus. Firstly, private capital is more efficient than public. But secondly, as we know but politicians seem unable to openly acknowledge, Australia does have a debt issue, in private households. Except it isn’t actually private is it? It is guaranteed quite explicitly by the public balance sheet in the rating agency’s two-notch upgrade to Australia’s major banks credit ratings. So we must, perforce, protect the public balance sheet lest its downgrade send rising debt-funding costs through the entire banking system and households.
But that does not mean we should aim for a muscular surplus, all hair and manhood. On the contrary, as the recent revision to fiscal multipliers by the IMF has illustrated, overly zealous public spending cuts have a much more severe impact on economic growth than hitherto thought and, I will add, especially so in times of private sector balance sheet repair. Peripheral Europe is a living case in point.
For all its surplus bravado, I do not believe that the Coaltion is unaware of this fact. Australian macroeconomic policy tends to exist on a relatively contained centrist continuum despite its rhetorical jibes venturing further afield.
Having said that, it may well be that the Coalition would redistribute public tax collection and payments differently to Labor. Chopping wasteful spending and offering tax cuts is all right with me, especially if such reform is accompanied by a rejigging of fiscal incentives away from unproductive investment in established dwellings and towards industry (we can always hope!).
But the surplus principle has to be either a managed shrinkage of public sector outlays, fully cognisant of the potential damage to economic growth, which is more or less what Labor is doing. Or, the redistribution needs to be growth neutral.
As peripheral Europe shows, if not, you risk making your national debt burden worse via a low growth feedback loop that only leads to more borrowing, public and private, ultimately making the reckoning worse. In short, for the foreseeable future, both parties will have no choice but to perpetually aim for surplus and to fail at the endeavour.
Do we deserve an “honest surplus”? Yes, we do. Will it be forthcoming from either party? No.
