Budget 2012-2013: We’ve Got a Surplus…And?

Ah it’s budget time in Australia and like all the budgets before it everyone was hanging their hopes that X program would get some funding or Y scheme would see the changes that were so “desperately needed”. I always wonder why certain interest groups get so upset when their particular interest isn’t catered to, I mean if the government has made any announcements or commitments to them then you can hardly be disappointed that they didn’t come through. For the most part though there’s usually one or two stand out issues that everyone was waiting to see what the government would say on them and this year the question was whether or not Wayne Swan could deliver a surplus he promised all those years ago.

From what I’ve read there’s nothing particularly shocking or controversial about the budget, it’s all fairly routine stuff. There are some interesting points though like the government’s plan to cut 1.2% of the public service force with a third of that coming from the Australian Tax Office. It’s a small decrease but most years see the public service swell rather than diminish. With that small of a cut I believe that for the most part it will simply be attrition that will see those numbers decline rather than people getting fired, although for the organisations facing a bigger cut like the ATO I’m wondering just where the cuts will be made (especially considering they’re getting an additional $378 million in funding).

There’s also some major cash injection the low to middle class battlers of Australia. For starters there’s a tripling of the tax free threshold from $6,000 to $18,000 a good boost for those low income earners. People on welfare payments will also receive a bi-annual boost that’s due to begin in March next year further helping the unemployed and no/low income earners. Families have also seen a boost in the form of the SchoolKid bonus and an increase to the Family Tax Benefit A. These moves have been labelled as a vote buying maneuver and I tend to agree with that point of view as I’ve been told in the past that many Australian middle class households effectively pay little to no tax, but I’ve struggled to find any evidence supporting this viewpoint.

The big question that everyone was asking before the budget was released was whether or not the Labor government could make good on its promise of returning the budget to surplus in this fiscal year. With the current budget projections we’re looking at a surplus of $2.5 billion by the middle of next year. It’s a rather slim surplus, something on the order of fractions of a percent of total GDP but it’s there none the less. It’s a rather big deal as Swan will be the first Labor treasurer to deliver a surplus since Paul Keating back in the 1989/1990 budget. Personally I don’t really get what the hoopla is all about as whilst its nice to a have a surplus it’s not exactly a bad thing when a government runs a debt.

I’m your kind of standard Keynesian kind of guy when it comes to economic policies. Running a deficit isn’t a bad thing so long as the government is doing so for a reason and has the capability to pay off portions of it once the need for the deficit has alleviated. The current eurozone crisis is an example of how deficit spending can go woefully wrong but Australia isn’t as poorly managed fiscally and the debt we’ve been running wasn’t really that large and we were more than capable of paying it back. Hell take a look at Japan who’s debt is over 220% of its GDP but do you hear any about them having debt issues like Spain, Greece and Italy? Not in the slightest and that’s the reason why a deficit isn’t necessarily a bad thing.

I do agree with the idea though that we should run a deficit during the tough times (like the Global Financial Crisis for instance) and should look to remediating it when times are good but I personally don’t think that we should have a surplus for surplus’ sake. Whilst there’s no pressing need right now for the government to spending gobs of cash and thus a surplus is warranted I get the feeling that they’re just doing it so they can say “Hey look we’re in surplus” rather than taking a long term view of where Australia’s financials are heading.

As for me personally? Eh, nothing amazing in the budget for a young-ish married man who’s got a good paying job. All the talk of them scrapping things like negative gearing and what not did have me worried for a little while but realistically I can’t see any government going after that particular tax break unless something is really dire. Returning to surplus will appease some of the more fiscally conservative voters and the splashes for families will help Labor build their approval rating, something that they’re desperately in need of right now. Everything else isn’t really that exciting, but that could just be me becoming cynical in my late 20s 😉

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