The government appears to be at a loss to know what to do. It failed to make the case for savings with populist crossbenchers and a Labor Party determined to be as intransigent as the Coalition had been in opposition under Abbott’s leadership. It allowed Labor to define its budget savings in terms of their “fairness”. It also has failed to make the case for savings with the community more generally, leading some to suggest it is time to revive the Hawke government’s recipe for a “summit” to generate at least a minimum community consensus on the need for action.
The problem is partly that although the budget situation is serious, it is not urgent. The ratings agencies all re-endorsed Australia’s AAA credit rating following the December writedown in the deficit, expressing confidence that blockages to savings measures would prove temporary.
…[Chris] Richardson says that while Australia does not have big debts, it is looking at large and persistent deficits. The task of budget repair, he says, is one of insurance against the next crisis. Going into a downturn with deficits the size they are now would leave the economy dangerously exposed. “If we can do something about that, we can help to future-proof Australia against the next downturn. We can build a budget that can be used to protect Australia’s economy when the next storm hits.”
This is double-speak for the simple fact that the Budget is the key stone in the Australian credit arch. When the AAA sovereign rating is stripped the banks will be downgraded as well and credit will become more expensive across the economy. Remember that we’ve not got much headroom before we breach the S&P ceiling of 30% general government net debt to GDP:
And we’re swiftly running out of rate cuts to make up the difference.
There’s a certain inevitability to it all, of course, as the commodities super-cycle bust destroys the Budget anyway but the fallout could and should be mitigated by a huge push to reform the Budget, not only in terms of savings, but in terms of productivity growth. That is, improving the quality of spending as much as the fiscal balance.
That’s where Tony should be going now, and Malcolm if he replaced him, but we appear instead to be swinging wildly into reverse for a binge of outright giveaways to save the Dead Duck.
That’ll boost growth a little in the short term and lock-in the crash in the medium term. Australian crashnics should be well pleased.
In the meantime, enjoy the makeover:
