From the WSJ comes the RBA’s Mr Rainbow:
“The issue that is most prominent, that we have to resolve before we move to other things, is the awkwardness of the size of the budget deficit, and the likelihood that it will remain very wide in five or six years,” he said.
“That is what the incoming Treasurer has got to come to grips with,” he added.
“The truth is that there are not many tax options that can credibly repair the revenue side [of the budget], except leaving current tax rates pretty much where they and allowing nominal income to claw back nominal revenue…I don’t think there is room for tax cuts,” Mr Edwards said.
Hmm, so Mr Rainbow reckons you getting poorer will restore the Budget. That’s straight outta the European school of economic management. Not least because if income taxes are going to implicitly rise how are households supposed to save the economy, which is embedded in RBA forecasts. They will have to to offset huge downdrafts in the terms of trade, capex, housing construction and, it appears, agriculture with a monster El Nino coming.
But don’t worry, China will save us:
“We knew China was slowing down. It is probably slowing down toward 6 per cent growth in a few years. But, if I can put it like this, the slowdown has been slow,” Mr Edwards said.
Yes, MB readers knew, but did you or the bank, Mr Rainbow? From earlier this year:
…“The real thing that is impacting us at the moment is the slowdown in residential construction,” he said of China. “There are some signs that that is beginning to turn around. I expect it will turnaround. It will have to turnaround otherwise China won’t be able to achieve its aims in respect of urbanization in the next decade or two.”
China will not save us, Mr Rainbow. China is now the problem. Nor will bracket creep fix the Budget in this context.
We need structural adjustment to cure both.
