After reading todays column by Michael Stutchbury (Tanner needs to sharpen his razor gang to stay in surplus), where he urges that the Government should not fatten the budgets structural bottom line, I remain as bemused as ever.
The Governments fiscal strategy is clearly defined as
– achieving budget surpluses, on average, over the medium term; and
– improving the Governments net financial worth over the medium term.
This requires the Government to run a deficit in times of extreme market failure of which there is no better example than the present. All western g
Unfortunately, the Government (notably Mr. Swan) is itself indecisive stressing at times the risk of running a deficit and at other times the risk of not doing so.
Mr. Stutchbury jumps on the Swan bandwagon and puts forward three arguments against discretionary spending.
The first argument is political. Voters remain skeptical of deficit budgeting. Yes, they are skeptical (thanks to the rubbish that Costello was feeding the public for many years). But wouldnt voters treat the prospect of higher unemployment as a much more serious type of threat? Even Malcolm Turnbull is urging the Government to do more to save jobs, jobs and jobs. How else can you do it without active political intervention including infrastructure spending?
The second reason is economic. It is one thing to allow the budget surplus to shrink naturally as the automatic stabilisers from a weaker economy”, as they boost spending on unemployment and reduce tax revenue. It’s another thing again “to deliberately blow the surplus”. Where does the fiscal strategy make any distinction between automatic stabilizers and discretionary spending especially of the infrastructure kind?
The third reason is political economy. Once the possibility of a deficit world is entertained, there is no obvious limit to what could be spent. This is ideology triumphing over sound economics.