Welcome to the economic smash formerly know as the “fiscal cliff” now re-branded budget boom by all and sundry, including the ABC. Mostly this boils down to braindead and corrupt journos gawking at the headline deficit when what matters is the rate of change in spending.
Here’s the chart estimates from UBS:
A few points:
- The bulk of the 20/21 deficit has already been spent during the shutdown so we’ll see a radical tightening in fiscal support for the remainder of the financial year to the tune of 10% of GDP annualised.
- Notice the deficit line for 21/22. Next year, fiscal support will crater another $150bn. Roughly -7.5% of GDP.
- The quality of the remaining spend is borderline disastrous. On the demand side:
- Tax cuts for high-income earners will do little for activity while cuts to income support for low-income earners will smash it. We can be thankful for small mercies in the likely keeping of boosted JobSeeker rate.
- Infrastructure spend is tiny at 40bn over 4 years which will add little to growth as the NBN rolls off. The supplemental NBN spend is more useful but is also small. The NDIS jobs machine is also about to plateau.
- Dwelling subsidies are wasteful but will provide some lift.
- On the supply side, investment writedowns and incentives to employ will do little or nothing in the absence of domestic demand and really only cost the taxpayer for activity that would happen anyway.
In short, this is a radical fiscal tightening that does no reform and departs entirely from the principles of Keynesian pump-priming (government should borrow and spend because private sector will not) in favour of structural cash giveaways to private sector political mates.
Moreover, it assumes a vaccine is imminent so will miss horribly on its growth forecasts. Plus, the Government is using completely the wrong trigger for even more austerity in the debauched ABC unemployment number of 6% (which is a laughing stock). It should be using the underemployment rate today given it is the only one that correlates to anything useful like wages and inflation.
This is about as bad a budget in the circumstances as you could fear to see. It promises higher unemployment and a “very weak” recovery. We can therefore only conclude one of two things. Either:
- Depressionberg is doing this deliberately to smash economic activity to force the RBA ever deeper into unconventional policy to drive house prices higher. Or:
- Depressionberg has no idea what he is doing.
I’d like to offer you some insight into which it is courtesy of the intellectual powerhouse of the national broadcaster but I can’t because it is too busy pumping the egregious propaganda:
Federal Treasurer Josh Frydenberg says he has no option but to spend big in Tuesday’s Budget, saying the “major challenges” facing the economy requires massive support.
Mr Frydenberg has indicated there will be substantial government support until unemployment is “comfortably under 6 per cent”.
“Unemployment tends to go up the elevators and come down the stairs,” he told the ABC.
“In the 1980s [recession], it took six years to get unemployment back below 6 per cent from where they started.
“And in the 1990s, it took 10 years to get it below 6 per cent from where they started. We’re hoping to move faster than that, and that’s why in this budget, you’ll see more economic activity as a result of our initiatives, creating more jobs.”
Tuesday’s Budget will see immense spending across all sectors of the economy, to boost activity and underpin employment.
“The economy does need it. There are still major challenges ahead and the road is hard. But there is also cause for optimism and hope. We’ve seen the economy fighting back,” he said.
“In the last three months, 458,000 jobs have been created — 60 per cent of which have gone to women, 40 per cent to young people.
“So outside of Victoria, jobs are being created. And once you can suppress the virus, the restrictions can be eased and more people can get back to work.”
One of these days we’ll face an issue of such grave national interest importance that accepting propaganda as reality will cost us dearly.
Oh wait…that’s today.
