Do-Labor Malcolm: Core Liberal value is “economic management”

Do-Labor Malcolm is going to regret this statement:

“The core Liberal value is competent economic management” – @TurnbullMalcolm #sun7 pic.twitter.com/jdykz3OxMt

— Sunrise (@sunriseon7) May 11, 2017

Alas for Do-Labor, his Budget isn’t competent economic management. Although its policy maneuvers are creditable the economic assumptions that underpin them are hopeless. As iron ore and coking coal collapse far below Budget assumptions in H2:

Devastating the Budget’s income growth assumptions:

The write downs by year end will be huge:

Moody’s is already hosing those assumptions today:

Moody’s Investors Service says that Australia’s budget for the fiscal year ending 30 June 2018 (FY2018) supports Moody’s assessment of the sovereign’s very high fiscal strength, but the country’s deficit will likely prove wider than the Australian government (Aaa stable) expects.

Moody’s says that Australia’s fiscal strength relies in part on Moody’s projections for general government debt, which should rise gradually to slightly above 40% of GDP over the next 2-3 years from around 36.0% of GDP in FY2015. Such a debt burden would be in line with that of other Aaa-rated sovereigns. Australia’s debt affordability is also in line with other Aaa-rated sovereigns.

Longer term, drivers of Australia’s credit profile will include: 1) whether the country’s fiscal policy stabilizes government debt levels, especially in the aftermath of potential future negative shocks to growth; 2) whether financial stability is preserved through a potential housing correction, thereby limiting the related fiscal costs as Moody’s currently expects; and 3) whether Australia will continue to attract foreign funding to finance its investment needs, as it has done in the past.

Moody’s analysis is contained in its just-released report titled “Government of Australia: FY2018 Budget Supports Fiscal Strength, Although Deficit Likely Wider for Longer”.

Moody’s forecasts a more gradual narrowing of the general government deficit than implied by the FY2018 budget, although Australia’s fiscal metrics will remain consistent with the Aaa rating. Specifically, Moody’s expects that revenues will not rise as fast as the government projects, and that expenditure spending will remain higher than budgeted.

That is still too bullish and it will be unacceptable to S&P, the most important of the three agencies. The AAA rating will be stripped.

The core Liberal value (or rather, brand) is “competent economic management” but the government has instead hoisted a petard of wildly fantastical Budget assumptions to which it will be nailed as Tony Abbott’s “Budget emergency” storms back as visionary in due course.