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Too clever by half and not clever enough

By Graham Young - posted Wednesday, 9 May 2012


As an emblem of what is wrong with federal Labor you probably can't go past the 2012 Federal Budget.

Rather than a solid exercise in economic management delivering the benefits of economic growth to all Australians it is an exercise in spin, redistributing wealth it has gouged from productive sectors of the economy to groups it needs to win back to have a show at the next election.

It starts with a fairly successful attempt to reframe debate around whether the treasurer would achieve a surplus, rather than how large that surplus should be.

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And there is no doubt that there should be a substantial surplus at this stage of the cycle, not the measly, and probably ephemeral, $1.5 Billion that the government is promising.

Even for an orthodox Keynesian, debt is not forever. Rather it is something that is used judiciously to smooth the business cycle.

The GFC is now four years gone, and Australia has experienced what most advanced economies would regard as reasonably robust growth for each of those years, so there is no excuse to be running a deficit now.

We should be piling up plunder in case it is needed for later, and for investment in the future.

Growth cannot occur without investment, and surpluses represent investment. They are not held in a box under the bed, but become available through financial intermediaries, to borrowers, most of whom are required to have a business case for their borrowing.

So not only do surpluses tend to lower borrowing rates, because there is more money available for lending, but they provide a positive stimulus to growth.

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What the federal government has done through successive budgets is permanently ratchet up the fixed costs of running Australia, distributing the money for consumption today, decreasing what is available for investment and making it more likely that in the next downturn we will have to borrow even more just to meet our domestic obligations.

As the new government is finding in Queensland as they peruse the books of their profligate predecessor, this easily leads to the situation where expenditure exceeds the ability of taxpayers to pay for it and borrowing, rather than being undertaken for investment in the future, is used to permanently pay running costs leading to a financial vortex.

That there has been some debate amongst prominent market and economists and commentators as to whether it was worth even having a surplus shows just how successful the Wayne Swan has been in reframing perceptions.

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About the Author

Graham Young is chief editor and the publisher of On Line Opinion. He is executive director of the Australian Institute for Progress, an Australian think tank based in Brisbane, and the publisher of On Line Opinion.

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