Posts Tagged‘cuts’

Are You Sure You Want This Surplus, Australia?

If you’re of voting age then you’re likely aware of the rhetoric that surrounds our two major political parties. Typically Labor is cast as a party that favours spending with the Liberals being more conservative (and usually “more responsible”). These stereotypes aren’t without merit however as the previous incarnations of both governments ran very close to those lines although the global circumstances in which both of them existed were radically different. Indeed the reason why Australia was one of the few developed countries to avoid a recession during the Global Financial Crisis and the follow Eurozone Crisis was due to the stimulus programs they engaged. However Australians, for one reason or another, seem to prefer our government run a surplus whenever possible and last night’s budget is setting them up for just that.

Australian Budget 2014-15

Hockey and Abbott had been priming us for bad news since talk of the budget first started circulating, noting that we’d all have to pay our fair share in order to correct the “budget emergency”. The line items in the budget show pretty much everyone losing out (with a few notable exceptions including high income earners, private sector business and mining) so the rumors were well founded. You’d be hard pressed to find any regular Australian that was happy with the budget but the consensus from the wider press seems to be that it’s economically sound and will eventually lead us to surplus. As you can probably guess I’m not a fan of it myself as it feels like getting to a surplus, mostly through cutting expenditure, is only being done for the sake of having a surplus.

Australia’s budget isn’t like your home budget where running a deficit for a couple years would likely see you sink into financial ruin. As long as a government is able to make repayments on its debt and is sensible about deficit spending it’s typically not an issue. Indeed when compared to the rest of the world Australia’s debt to GDP ratio is extremely low, well below that of many other countries (including Germany) that are considered fiscally responsible. Thus the talk of a “budget emergency” is built upon a base of incorrect assumptions, ones which have resulted in a budget that hits everyone and hits those hardest who are least able to afford it.

In all honesty it seems like a long term play, one that the current government can take some political pain on now so that when the next election rolls around they can point to the budget and say “Look at this magnificent surplus”. Sure the current projections don’t have that happening for 4 years but this is the first budget of 3 and there’s the real possibility that the next budget will be in the same vein. That is what worries me as whilst running a surplus sounds good the cuts made to get to it are likely to be far more destructive than the small amount of debt required to maintain them.

It will be interesting to see how this plays out with the wider public as this was what the majority of Australians wanted but I’m sure many of them did not expect it to come and slap them in the face like this. The true test will be to see if the political pain is only short term as I believe that’s what the Liberal’s current strategy is betting upon. Abbott is already having a tough enough time as it is with people quickly realising he’s great in opposition but not so in power. Still the Australian public seems to have a short memory and a shiny surplus in 3 years might be enough to convince everyone of the Liberal’s economic credentials (and not the lack thereof).