From the AFR comes PMT:
“We certainly need to get the budget back to balance over the cycle. When you talk about the budget being in balance over the cycle, when the business cycle is roaring ahead and the terms of trade are booming, you want to be running surpluses and putting money in the bank, preferably in a sovereign wealth fund.
And when times are bad, you’ve got the ability to spend in a manner that supports aggregate demand when the private sector’s in retreat.
This is ten years too late. Not that it isn’t a discussion worth having but it’s rather academic now. The Australian Budget is not going to return to surplus for a generation and possibly not in our lifetimes. The broken structure of the economy now won’t allow it with its over-dependence of fading mining revenue and debt-saturated property prices to drive tax revenues. That is a recipe for endless public spending. We’ll need to rebuild the wider tradables component of the economy for a very long time before we can get anywhere near public surpluses again.
But, it is still a worthwhile notion on two fronts. First, when the next terms of trade boom does come in 2165, PMT is right that we should do what his predecessors in Howard and Costello did not, and save some large portion of the windfall tax gains rather than offer tax cuts:
Second, that immunises the economy to Dutch Disease by preventing economic overheating and holding down the currency as the riches flow in.
Alas, by the late twenty second century when the virtual latte is tradable online and Australia’s terms of trade boom again, I suspect the lessons will all be forgotten anyway.
