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?
20 Responses to this article
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sally October 22, 2012
Given that i would walk over hot coals if it would stop Abbott winning the next election, accepting the (stupid) necessity of Labor having to prove its economic creds by balancing the budget this year at least (and probably next) is fine by me.
After that, i would expect the government to put politics second to economic management. -
Jenny October 22, 2012
I wish I understood economics enough to have an educated opinion on this, but I don’t. But it does seem to me that Wayne Swan could be facing an uphill battle for his surplus when you consider all of the external factors in play. Sure, there are many ways that money could be saved without causing major distress to vulnerable people, but the problem is with us, the general public, and the reaction we would have to any curtailing of our high – living ways. I know that I could make do with less, by paying higher taxes or having fewer concessions even though I may not like it. We complain about our health and education systems, and our service industries but we have to face the facts that they have to be paid for out of our own pockets, the money doesn’t come out of nowhere.
Maybe it would be more realistic to work toward breaking even as a best scenario. But then that would be seen as a broken promise, and much political capital made of it! Seems like Wayne Swan may have made a tactical error in making that surplus promise too far ahead of time. I really don’t want to see the genuinely disadvantaged made to suffer even more that they already do!
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Alexx October 22, 2012
I like where they cut from. The big Howard handouts to private medicine need to be wound back until they end. The Productivity Commission argues they provide none of the claimed benefits to the public system. They were just ideologically motivated vote buying.
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Zelda October 22, 2012
It’s not government’s role to make surplus ! That’s a term which translated means “profit”.
Warning rant follows –It’s government’s role to look after its citizens and that means it runs in debt most of the time.. They have been voted in to look after the services that are needed like health care, and that is where the money has to go…not to make a profit.
A surplus means that the govt gets a good credit rating and can borrow more money some time later for other projects. So we get screwed while they “look good” ??
No I am not happy, they are going to take away my private health rebate. The idea was to shift people out of public health and into private health facilities as encouraged by John Howard (not that I was a fan of his) So we decided yes we wanted to have a say in how we were looked after in hospital – user pays – okay, and it is much, much better. But now I am feeling savaged and used. User pays gone mad.It feels to me that this is another take from those who are getting stuck in and making a go of it to give to the ones who don’t.
Bottom line is, it’s our money when its all said and done and we deserve better consultation processes to see if we agree!
Not some threat about how hard a surplus will be come by.Yeah! I think this govt has lost its way.
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Wendy Green October 23, 2012
Zelda, I think it is extremely prudent of our government to get our economy back into surplus, and I don’t agree that surplus means profit – I think surplus is more likely to mean ‘extra funds put aside until we need them’
I am very keen for our economy to be in surplus and I truly hope that Mr Swan gets us there as he said he would.
We are indeed the ‘Lucky Country’; we have a fantastic standard of living and we take care of our needy – this is the country I want to live in! You only have to take a plane trip to realise how wealthy we are; the airports are FULL of people travelling on a mode of transport that used to be out of reach of the majority!
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Leara October 22, 2012
How peeved would you be if you were having your second child due July 2. Bet there are some early C-sections before the Baby Bonus drops to 3K on July 1st 2013.
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Rhoda October 22, 2012
There’s the little problem of being able to borrow money if you don’t have enough for social programs and infrastructure and considering the state of the world economy I think it a good idea to live within our means. You can only spend money if you have it to spend.
I’d like to see more attention paid to money wasted. Every damn cent of taxpayers money should be accounted for. A cent wasted is a cent that doesn’t go where it’s needed.
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Carole/m October 22, 2012
I’m with you Sally.
And you Alex.
Zelda, governments don’t make profits, they collect taxes and make decisions as to how these taxes will be spent.
3 x AAA credit ratings for this country has never been achieved before by any previous government , I believe this means that we are able to borrow money at low interest rates.
This is a good thing for the whole country, not just the government.If your biggest problem is not getting a rebate on your private health care , well geeeez, maybe a thought for people trying to live on disibility & aged pensions.
As for ” better consultation” , that’s called an election.
The government has not lost it’s way, that’s just a Slogan.
We have the 3rd lowest debt of any country in
the world.
We have low unemployment.
Low inflation.
Low interest rates.We are the envy of the world but we have become a ” mob of whingers “.
The consequences of the “global financial crisis”
will probably still be felt for another 5 years so let’s face it, how lucky are we that we’re not living in Greece or Spain or Ireland or America etc. etc.I think Wayne Swan is doing a damn good job.
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Zelda October 22, 2012
Carole/m – we agree, all except on the semantics.
Govts collect taxes as income and try to make a surplus out of them = profit in business terms..A capitalist system means that governments try to run themselves as a business would – ergo :profits called surpluses. We need to have a say in how those profits/surpluses are spent since we provided the income after all. It appears benevolence is dead.
We do not like to be punished when we contributed the money or are shareholders if you like.
I don’t do slogans, I simply am making a personal statement – not a throwaway line.
This government started out as one of by the people for all the people, now it’s for some people. I suspect the tall poppy syndrome is back in style. Or is it that is where the votes are ? Therefore I feel that this government has lost its way and I voted for them.
Aussies were always whingers, goes right back to our convict origins. Wasn’t it ever thus ?
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Zelda October 22, 2012
BTW Carole/m would you trust the public health system ? Really ?
I’ve worked in it and I am happy to pay my private health fees to ensure i come out alive.
Disability I support and as for pensions, it is ridiculous.
Whatever happend to the funds Peter Costello put aside for the aging Australians. Where has that gone ? It should be supporting those who are struggling.
But then me and my family have denied ourselves a lot of things and so called pleasures so that we could have a quality aging and health care. Are you saying we should not have it ? -
Linda October 23, 2012
I could not give a stuff about the surplus. Creating jobs and keeping people in employment is more important to society, as are good schools, excellent universities, healthy hospitals and looking after the critical needs of the environment, which we all rely on.
A government’s job is to keep society and the environment healthy, not just to pander to the politics of the polls and obsess about balancing the books. The Labour politicians are acting like supermarket owners with the economy. Their major shareholder in this instance is the Liberal party (ironically) and their main concern is proving their opponents wrong. The government should focus on meeting the broader interests of society and future generations.
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Wendy Green October 23, 2012
“… The government should focus on meeting the broader interests of society and future generations …”
Linda, do you mean like reducing carbon pollution and encouraging big polluters to implement alternative low pollutant energy sources by introducing the Carbon Tax, AND helping the disabled towards a better future by introducing the Disability Insurance Scheme, AND helping our kids through education by implementing the Gonski Report, not to mention using the stimulus package (which, by the way, saved our ‘arses’ during the worst of the GFC) to improve facilities at our local schools – AND provide employment to many … (need I go on …?)
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Annie Also October 23, 2012
It scares the crap out of me;
would you trust the public health system ? Really ?
I’ve worked in it and I am happy to pay my private health fees to ensure i come out alive.
Thanks for that! Since my husband is on a disability pension and has been for 20 years ( wherein he has nearly died three times) we have ONLY the public system ( albeit in regional Aust, no less) to rely upon. We have to say; for all its faults and underfunding ( so the rich and middle class can get their ‘choice’ of docs through being encouraged through rebates) they have kept my hubby alive and still with me. Whenever anyone talks about :
“It feels to me that this is another take from those who are getting stuck in and making a go of it to give to the ones who don’t.”
You are talking about ME and my husband. It is hard enough without the vilification of being on a disabiity pension! It is shameful enough in modern Aust to say at 50 something years of age…we ‘don’t work’….But by heavens it is hard work just being in the ‘system’ and keeping docs appointments and meeting their ‘extra’s’ and paying the rates etc.
Please please. It could be you one day and thank your lucky stars you live in Aust…coz there is a safety net.
We are so so grateful and hate the ‘whingers’ who are usually the ‘better’ off of our society.
Aust is doing fine. Let’s talk the old girl up and show our support for her in the world and be proud of our ability to pick reps who dragged us safely (thus far) through the GFC. Ay?-
Zelda October 23, 2012
Annie Also, no one on a disability pension is in my book a person who is not “having a go”. I would be more than happy to pay an extra share for those who are disadvantaged.
I am talking about those who are just too darned lazy to get in and make something of their lives as well as teach their children to make something better.
Somehow they seem to be encouraged not to thrive. My husband and I just got on with getting on and we are not special. Just doers !
My argument is that those who can should be encouraged to do more.
It’s a global world we live in now, not just Aust and so we are unfortunately playing the world game, like it or not.-
Wendy Green October 23, 2012
Zelda, I’d like to respectfully invite you to join a charity near you, say St Vincent de Paul or Anglicare, and go and visit some of these disadvantaged people you seem to think could get ahead if only they ‘tried’. I think you might be surprised to find they are fair dinkum Australians who more often than not aren’t able to do any better than they currently are as they struggle to make ends meet.
And by the way, you don’t have to endorse the religion of these groups to be a volunteer, you just have to have a caring, empathetic nature, which I’m sure you do have.
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Lucille October 23, 2012
The budget is ‘our’ money. A surplus means we are not getting it back in social and other areas. Having a deficit means we have to pay interest. I would rather see our money being spent wisely even if it costs. Taking it away from those who need it is ridiculous just to balance a very low debt in relation to the rest of the world. I do think however, paying women to have babies is ridiculous. If they want them they will have them anyway. A few thousand dollars will result in Unwanted babies.
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ellenni October 23, 2012
before i becase treasurer of a social club i too asked why we needed a surplus. the answer is we need money in the kitty for unforseen emergencies. when i married almost 50 years ago my mum told me to always keep some money aside for emergencies, so i slowly built up a little pot of money. when eldest child came home and told me he had torn his school jumper i could cover it without it making hole in the household budget. when the libs left a nice surplus some came along and gave it away. so yes we do need a surplus but at what cost. i dont trust anyone to handle my money unless they have run a business. career politicians are not businessmen and i want my money looked after by someone who has managed to become wealthy and stay that way. so i will be looking very closely at who is running for office at the next election.
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sue bell October 23, 2012
Be careful Ellenni it seems to me that the people who become wealthy and remain that way are happy to use and abuse people to become rich. Do you really want a Clive Palmer or Gina Rinehardt making decisions about money for the people on hard times, in need of support. I want politicians who will look after the least in our society. We are beholden to care for and look after those worse off than ourselves, not to blame and punish them. I have seen very few really wealthy people give a damn about those less powerful or wealthy than themselves, usually they only want to help themselves and their friends get even more.
