A budget can go into deficit simply because of automatic stabilisers if economic growth slows. This is what is going to happen next budget.

Given Rudd and Swan’s recent comments, looks like the correct prediction prize is hereby awarded. I was expecting them to take maybe a year or so longer to go into deficit. Not that I really believed Labor’s election hype, but I thought they had managed to convince themselves it was true.

And John Howard sought to learn the political lessons from that – which involved spending as much of the surplus as seemed possible without triggering inflation and associated rises in monetary policy.

He did trigger inflation, but was canny enough to hide it under bubbling asset prices, especially houses which are slow to convert into cash.

+ special condition for NSW to toe the line on the Murray-Darling.

Why stress about NSW? It’s Queensland who have all the water. Then again, they also have most of the rainfall so it a way it is rightfully their water to begin with.

I’m not sure why the bank would have to pick a suitable fiscal policy once a year. It doesn’t do that with monetary policy.

The problem with not trying to build institutions to mediate democratic fiscal policy making is that the political incentives around fiscal policy are perverse because of long lead times (same story as monetary policy). Thus Jeff Kennett built a large surplus which was of benefit to his successors. And John Howard sought to learn the political lessons from that – which involved spending as much of the surplus as seemed possible without triggering inflation and associated rises in monetary policy. In fact he took too much of a risk on that side – and landed his successor government into what looked like a nasty period of inflationary pressure. Then the global economy collapsed and the problems are all different. But Howard’s fiscal policy managed to pass significant problems onto his successor.

Of course you may be right that the RBA did the wrong thing in raising rates (ex ante that is, obviously it did ex-post). But such mistakes get made. Generally they’ve done a damn good job since the recession we had to have.

Even in todays circumstances, the RBA, when setting a deficit figure, would also need to determine which spending decisions were worthwhile and which were not.

In general, it would be giving the RBA excessive anti-democratic power. I still prefer that the independent fiscal authority should be housed elsewhere.

That said, I would lean towards leaving fiscal strategy in the hands of the existing authorities. If they get it wrong, then the Government should be held to account. I think we are all being conned by the media and the Government should be brave enough to sit up and “educate” people.

That’s why I’ve been advocating more independence in fiscal policy for over a decade now. But you want more democratic fiscal policy. Why complain when you get it?

I’ll be concerned if the govn. runs a deficit.
I’ll be concerned if they run a balanced budget.
I’ll be very concerned if they run a surplus in the current climate.

I’m nearly agreeing with homer.

Most market economists, the Reserve Bank and outside observors have said that it would be entirely proper for the federal government budget position to move into deficit given the unfavourable economic circumstances.

Yet it became an article of faith in Australia under the Howard government that budget surpluses somehow were a cause of our economic strength, not a result.

Now we have this silly nonsense where the press gallery, in its usual transparently stupid attempts to get a ‘backflip’, ‘gaffe’ or ‘gotcha’ headline, is trying to get Swan to admit a deficit is likely.

And Swan, knowing he is on a hiding to nothing and that an army of spotty opposition nerds are on his case, is forced to play along with this charade.

The mainstream media in Australia is a disgrace.

As a deficit-sceptic I would buy that argument.

Fred

Australia does have a few “only(ish) country” cards up its sleeve at the moment, which must be irresistible for Rudd to play as he jets hither and thither. But Swan’s case is different. At present all he is doing is highlighting Howard/Costello’s ‘achievements’ without leveraging them to his own political advantage.

If Swan is being disingenuous in his ‘No D-Word’ rhetoric, then he is a tool and a fool. If he thinks deficits are inevitable and/or a good thing he should either say so right up front or resrve judgement NOW!, not come out swinging with ‘Never Ever’ nonsense.

With this unbelievable political capital they have, squandering it on lies and consequently flip-flopping and/or dithering is a really bad look and just plain dumb.

+ special condition for NSW to toe the line on the Murray-Darling.

Carpe diem, as it were.

Take the latest budget forecasts of the UK. It started with a big surplus and is now forecasting a budget deficit of more than $100 billion next year. Gordon Brown comments that “this is not the time to become prisoners of the old dogmas of the past”.

Yet Australia is being hit on all sides – by the drop in resource prices (only partially offset by depreciating currency), the loss of confidence, the drop in demand and the soon to be felt drop in housing prices.

The Governor of the Reserve Bank is well aware that monetary policy is largely ineffective and actively wants to see some deficits.

Has the Opposition laid a big trap for the Government? Why are our Ministers so foolish? All the Treasurer needs to say is that, without further information or initiatives, the Budget forecast may end up without a deficit. But, if the forecasts prove wrong (as Access Economics allege) or if they they want to inject more demand into the market place, this will creat a deficit. Swan has said that the Government promise is only to run a surplus “over the economic cyle”.

It helped.

My dear, you would do well to consider the subject of my comment. And that subject was the Australian people who respond to the type of survey, which is the subject of this thread.

I hope this helps.

A budget can go into deficit simply because of automatic stabilisers if economic growth slows. This is what is going to happen next budget.
This is entirely different to a Government increasing spending to boost the economy.
Howard had a structural deficit of $8b in a commodity boom so we have a good guess of how big the cyclical surplus was.

IT is entirely ironic that Keynes in the General theory only said to use Fiscal policy ( ie a structural deficit) hen there was a liquidity trap as monetary policy then became impotent.

After all, no less an authority than the NSW premier already seems to believe that running a deficit will cause a recession.