Monday, December 15, 2014

Mid-Year Economic Forecast

There are five points that ought to be made about Australia's deteriorating budget position.

First, Joe Hockey and the Liberal Government must never be allowed to forget the standards they applied when the Labor Government's predictions of a Budget Surplus did not eventuate due to declining revenue. They insisted this was no excuse, and accused the Government of incompetence and worse – Joe Hockey talked about people going to jail over such matters. They said there would be no excuses.

Second, the big end of town and their Liberal Party and media cheer squad will try to use the deteriorating Budget position to promote their ideological agenda of cutting back Government spending, jobs and services. No matter what the state of the economy they always advance this agenda. But Joe Hockey's Budget has damaged consumer confidence and contributed to the rising Budget Deficit and rising unemployment we now see. It was a shock, not a shock absorber. Austerity measures in Europe following the GFC made those economies worse. They didn't work there and they won't work here.

Third, it is possible to balance the books without taking the axe to health, education, or pensions. The Liberal Government has chosen to greatly increase Australia's defence spending to 2 per cent of GDP. This is an arbitrary figure and an increase which will not make Australia a safer place. We could do much more to close tax breaks both offshore and onshore, which have increased substantially in recent years. We don't need to continue negative gearing, which costs taxpayers dearly and pushes up the cost of housing at the expense of young Australian homebuyers who can't afford to buy a home.

Fourth, we have pursued policies for years now of globalisation and free trade which have promoted mining and damaged manufacturing. This was very short-sighted. For years I and others have pointed out that we should be doing more to spread the benefits of the mining boom, and that it was foolish to put all our eggs in the mining basket, and allow the dollar to rise and kill off manufacturing. Our economy has become too narrow, and we are way too vulnerable to things like a fall in commodity prices. The free trade fundamentalists have left us vulnerable and exposed.
Finally, we have lost interest in the current account deficit and the national debt. There was a time when the Liberal Party rolled out a "Debt Truck" to draw public attention to our trade imbalance and our overseas debt. But while the current account deficit and the overseas debt turned the Debt Truck into a metaphorical Road Train or Ocean Liner, they lost interest in this. Instead of encouraging household saving and investment by Australian owned companies or superannuation funds, they think foreign debt is not a problem provided it is turned into equity – selling off the farm. Again this is an incredibly short-sighted view and a recipe for Budget Deficits as far as the eye can see.

1 comment:

  1. Our economy has certainly become too narrow! Much of our economy has become reliant on housing and real estate, and rising house prices have become an indication of economic health! What's not equated is the cost of growth. Already Australia is sinking into deficit for infrastructure, and living conditions are falling. The neo-liberal policies are all about "the economy", not on human well-being. If we are struggling to maintain our budget, the most illogical thing to do is to keep on the same track of high population growth! If families are struggling, they shouldn't keep having more babies. It's assumed that the great break, of a budget surplus, is just around the corner. It's a gamble. We are leaving a heavy load for future generations to inherit, of debt, a struggle to maintain jobs and living standards and all the "challenges" ahead globally. Population growth now is theft of future generations, who'll inherit an economy, and planet, already at its peak!