Federal Opposition leader Tony Abbott has chimed in on today’s weak employment report:
It was no wonder jobs growth was weak “when you’ve got a government which simply cannot deliver when it comes to budget management….No government can be good for jobs if it is not good for the economy,” he said.
“As Julia Gillard herself has said, you can’t run the country if you can’t manage the budget.”
Mr Abbott pointed out that Ms Gillard and Treasurer Wayne Swan had on 200 separate occasions promised a budget surplus – something the government now concedes is unlikely.
“(A surplus) is not going to happen and they have failed their own test of economic management…That’s why we’re getting the kind of economic weakness which we’re currently seeing.
“Shadow treasurer also attacked the government over the data, saying they are doing nothing to stimulate confidence in the economy.
So, the current fiscal project of minus 3% of GDP in government spending is causing economic weakness because it hasn’t been enough? This gobbledygook comes from the School of Ricardian Equivalance which reckons that:
Suppose that the government finances some extra spending through deficits; i.e. it chooses to tax later. This action might suggest to taxpayers that they will have to pay higher tax in future. Taxpayers would put aside savings to pay the future tax rise; i.e. they would willingly buy the bonds issued by the government, and would reduce their current consumption to do so. The effect on aggregate demand would be the same as if the government had chosen to tax now.
There may have been something to Ricardo’s ideas in the old cycle. After all, Australian consumers did respond to higher government saving by running down their surpluses. Then again, in most other Western nations, government’s spent like drunken sailors and consumers joined right in.
Anyway, in a period of deleveraging, Ricardo has little to offer. Increased government savings result in more private sector retrenchment as both seek to replenish lost wealth simultaneously. This can result in exaggerated fiscal multipliers to the downside, as the IMF recently confessed, higher unemployment and greater difficultly servicing the existing debt.
But let’s not go there!
