The Prime Minister and Treasurer want cuts, cuts, cuts! From The Australian:
The Prime Minister and Treasurer have locked in harsh measures at “razor gang” meetings in the belief that the bigger political threat to the Abbott government in its first term is disappointing those who expect it to act quickly on repairing the budget.
A senior cabinet minister told The Australian yesterday that the focus of the expenditure review committee was on “tough decisions” to scale back the deficit.
Mr Abbott, who is chairing the committee deliberations, gave a meeting of federal departmental secretaries a similar message last week, telling the public service chiefs there were “very tough decisions” on the way.
“There is now a public appetite for tough decisions and the biggest risk now is disappointing those expecting the government to act,” one Coalition source said.
Labor announced $35 billion in “major savings” over four years in its first budget after returning to power in 2007, but this included tax increases as well as spending cuts.
The government is aiming to do better than Labor on spending cuts without resorting to tax hikes. Putting voters on notice, Mr Abbott told parliament yesterday that the government would keep its election promises but that the “tough decisions are coming, but they are necessary decisions for the prosperity of our country”.
We shall see. If the government is good to its word and cuts, say, $50 billion over four years then it’ll be pulling roughly two-thirds of a percentage point out of GDP per annum. As we’ve already seen under Labor’s austerity efforts, that will only make the budget bottom line worse as the fiscal multipliers hit tax revenue unless the private sector ramps up its borrowing which won’t happen with a high dollar, falling terms of trade, capex cliff and already high house prices.
Joe Hockey has also made it plain, quite sensibly, that he won’t undermine growth in the near term so any austerity in the next year will be fictional, the real cuts will be back-end loaded for later years and largely offset by the roads agenda outsourced to states and PPPs.
All sensible enough stuff except that although roads may be privatisable they’re not especially productivity-enhancing infrastructure so, again, we’ll all pay long term via further declines in our potential economic growth rate and lower income growth so we can pretend we’re fixing the budget now.
Bring on the cuts!
