The Federal Budget.

It’s that time of the year again and with less than a week until the official announcement the budget buzz has begun. Let’s take a look at what has managed to slip out from the cracks in parliament and see what that means for Australia at large:

These are interesting points, mostly for the fact that many of them mirror what the United States did with their budget. Most notable are the almost direct copies of an increase in tax for the wealthy as well as a large increase in defence spending. I can’t help but think that this is a little bit of me-too-ism from the Rudd government as the decision has been well received by the working class and not so much from the corporations. Saying all this though Rudd and Swan are making the best of a bad situation and will continue to look to score political brownie points throughout the economic crisis.

The other issue here is that Swan has stood his ground firmly when it comes to delivering the tax cuts they promised a while ago. I can admire their dedication to delivering on an election promise but when they’ve stated that the budget deficit will last for such a long time it seems like a terrible move economically which won’t push their ratings that much higher in the polls. Again this mirrors the United States position of cutting taxes to increase revenue but when you’re in such a large hole of debt cutting taxes only serves to draw out the time the country stays in debt. It may soften the blow, but you’ll suffer for much longer because of it.

Personally the bits of the budget that I’ve seen so far seem to lack a cohesive strategy that I’d expect from the people running the country. Many of the ideas seem to reek of robbing Peter to pay Paul, with revenue generation coming from all the wrong places (people’s superannuation is really the wrong place) and then spending it by giving it back to the people they took it from. A strange bit of circular logic there.

I’ll still take all of this with a grain of salt as the strategy the government is planning to take will become all the more clear next week when the full budget is announced. It’s easy to get riled up over small bits of information like this and what we have is really only a small part of a larger picture. Still the parts I’m seeing right now don’t give me the best feeling about the rest of the picture.

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  1. I think you’re placing a bit too much faith in a newspaper printed rumor. I doubt we will see tax increases in the budget, Rudd would rather a slightly higher deficit than the unpopular idea of tax rises. Especially whilst simultaneously delivering tax cuts. We may (HOPEFULLY!) see a cut in middle class welfare (ie FTB’s etc) but thats a different issue.

    The government is somewhat tied as Keatings LAW tax experience still haunts any government which promises cuts but doesn’t deliver. The people may forgive them now, but, should they renege on the promise, the opposition is guaranteed to run advertising next election showing Swan promising one year, then not delivering the next. Bad economics, but even worse politics (I dont think it would cost Labor the election, but this is still a rather cautious government)

    And the US isn’t following the Laffer curve, indeed Obama is raising taxes on the richest few % to Clinton-era levels. And nobody follows the laffer curve simply because it simply doesn’t exist. It doesn’t work. Never has, never will. The only reason republicans raise it today is because that is the one item of their policy the entire party believes in. Hence cutting taxes becomes their solution to every political or economic problem. It’s not a serious approach to government, and the parties in Australia on the left and right both wisely avoid any such nonsense.

    But you’re right about the lack of internal coherence in the discussion of the budget so far, and the size of the deficit is starting to worry even this deficit friendly lefty. It’s time to tighten belts, not imagine that (almost like a reverse laffer curve) that counter-cyclical spending will always bring economies out of recession. Sometimes in bad times you do need to cut spending too.

  2. Hence my last paragraph of taking this whole thing with a grain of salt. Until it’s official it’s all speculative and I’m still keeping a sceptical eye trained on the news to see what else comes about.

    You’re right about the points of not delivering and it’s a real shame that people’s memories would be so short that they’d forget that such action would’ve been taken in context of the global economic situation. Unfortunately I can see how this would unfold as it did for Keating, with the world’s economic situation twisting people’s perception.

    I brought up the laffer curve mainly to redicule it and show how some of the thinking going into giving people tax cuts during a recession is a bad idea.

  3. Just to further my point, I’ve come to think it important Rudd does deliver the tax cuts, if only because their cost is low compared to the budget deficit($2.7b), but and especially in hard times it is important the Government deliver and be seen to deliver on their promises. We always want good pragmatic policy making, but sometimes its worth a bit of cost to re-enforce the trust between the public and the government. There was a dangerous pattern for many years under Howard where the public did not trust him, but kept with him. Whilst times are good thats ok, but in harder times, when governments are calling for public sacrifices that trust is a critical element not just for the governing parties success, but even the well being of a nation as a whole I would argue. But all will be revealed come Tuesday. Whose in for a budget night party ?

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