A BUDGET SURPLUS. AT WHAT COST?
What’s the worth of having a budget surplus? No matter how miniscule?
For Australia’s federal treasurer, Wayne Swan it’s become an article of faith. A promise that he is determined not to break, despite many economists remaining unconvinced it’s not one worth keeping.
Yesterday the Treasurer released the Mid Year Economic and Fiscal Outlook (MYEFO) -a mini-budget in effect- to plug a $4 billion hole that’s emerged since the May budget.
Treasurer, Wayne Swan promises to return the budget to surplus. Image: Kim Smyth via The Herald Sun.
The causes of the shortfall? Lower than expected revenue from the mining tax and a fall in the take of corporate tax.
The Treasurer has one eye on next year’s election and is all too aware that a budget deficit will hand the opposition an ace to play in their ongoing campaign that Labor can’t handle the economy.
“Broken promises, higher taxes and cooking the books. You just can’t trust the current Labor Party with public money,” says Liberal leader, Tony Abbott.
It’s a tightrope act for Mr. Swan, as evidenced by this headline in today’s Australian: “Swan juggles to save slim surplus.”
And this in Fairfax : “Swan empties bag of tricks to save his skinny surplus.”
But is a budget surplus worth the circus act? All the “smoke and mirrors” as some detractors have called it.
Speaking on Radio National’s Breakfast show yesterday, Chris Richardson, partner with Deloitte Access Economics did not underestimate the problems facing Australia in balancing the books – many of them factors beyond our control.
“The economy comes with a Made in China stamp,” he said. “As the China tide recedes it’s a challenge for the economy.”
He went on to say that the biggest challenge we face is in falling national income growth. If we are to afford the big ticket items – the National Disability Insurance Scheme and the reforms of the Gonski report – the Government will have to take tough decisions.
But on the pledge of having a surplus?
“ I can’t say I’m the world’s biggest fan of having a surplus in 2012-13… We don’t desperately need a surplus this year. The economists aren’t as fussed as the politicians are,” he said.
Treasurer Swan did take some tough decisions, including a reduction in the baby bonus- $3000 for second and later children – saving $500 million from the next financial year. He also reduced the rebate on private health insurance.
“This mid-year review has been put together amid storm clouds which are hanging over the global economy,” he said.
There is no doubt that “balancing the books” comes at great social expense, as evidenced by deep cuts made by the Queensland, Victorian and NSW Liberal governments.
For an international perspective: Last week distinguished economist Martin Wolf delivered the Max Corden Lecture at the University of Melbourne on how the global financial crisis had changed the world.
Speaking on ABC TV’s Lateline he said : ”Your public debt problems seem amazingly trivial by our [European] standards. We only wish we had your net debt position, which is obviously incredibly comfortable.”
You will note from this graph (above) that Australia’s debt is one of the world’s lowest – commensurate with Norway and Luxembourg.
Monash University philosopher Tim Soutphommasane wrote at Fairfax that the Australian electorate had become enslaved to “naked populism”.
“Earlier this month the International Monetary Fund showed that Australia had overtaken Spain to become the 12th-largest economy in the world. A global study by Credit Suisse bank published last week also showed that the median wealth of Australians is the highest in the world. The average wealth per adult in Australia, at $US355,000, ($A343,000) is the second highest in the world behind Switzerland.
“You wouldn’t guess any of this from the public mood and public debate. Certainly, in political terms, the Gillard government hasn’t enjoyed the credit for economic management that you might have expected from such stellar figures,” he wrote.
However, for many of us who look at the financial problems engulfing Greece, Spain et. al, the ideal of a budget surplus is one that brings us great comfort.
It’s a financial security blanket, if you will.
Trust economists and philosophers? Perhaps not so much. Politicians? Even less.
Today were asking: Just how much does a surplus matter to you?
Would a failure by Wayne Swan to achieve a surplus be a factor in your voting intention?
Are “balanced books” worth achieving? At what cost?