From the AFR comes Tony Abbott today:
And we may have a new catch phrase! The Coalition is not going to “chloroform the economy”, Mr Abbott repeats three times. “The economy will always be stronger under a Coalition government. Government spending will always be lower under a Coalition government because we understand the job of government is not to burden but support people.”
As our economy slows owing to the mining investment cliff, does this claim make sense? Could the Coalition reduce spending and improve growth at the same time?
Yes, it’s possible through two channels. Lower government spending will, all things being equal, reduce interest rates. That will lower the currency and, so long as the private sector is willing, increase borrowing. However, in the current environment of prudent households and a tradable sector on its knees, both are likely to have limited effects and, in all likelihood, shrink growth further.
The second channel is via lower but better government spending. If the government were to cut $1 billion worth of middle class welfare and replace it with $900 million on well-chosen infrastructure then the effect would be better quality and probably higher growth as productivity improved and supported incomes rather debt doing the same.
Someone in the press should ask Tony Abbott which channel he has in mind instead of celebrating throwaway lines.
