Posts Tagged‘keynesian’

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 😉

Election 2010: Let Me Educate You, Australia.

I resisted getting into politics in any way for most of my adult life. For the most part I thought it was just a popularity contest that I had no intention of getting involved with, nor trying to form an opinion on more it than once every 3 years. Fortunately I can count amongst my friends a highly skilled academicwho’s area of study is politics and his constant pontificating about the subject eventually pushed me into figuring the whole thing out, lest I be unable to communicate with him (and subsequently be utterly bored). Today I pride myself on taking an engineer’s approach to the world of politics, figuring out the variables and breaking it down into manageable chunks upon which I can base my ultimate decision. It’s no secret I tend towards the liberal ideals with perhaps a touch of the libertarian in me, much like most of my generation.

This year though presented quite a conudrum as neither of the two major parties nor any of the others could logically get my full support. Labor continues to push policies that I can not agree with (Internet filtering and other nanny-state type policies) and the Liberals candidate for Prime Minister is nothing more than a rabid attack dog who couldn’t write a decent policy to save his life. The popular choice amongst my peers would then be the Greens party who, whilst giving their preferences to Labor, don’t support Internet filtering and have favourable policies in many other areas. Unfortunately for someone like me who sees the benefit in developing nuclear power in a similar fashion to countries like France the Greens can’t be an alternative as they outright oppose any kind of nuclear development. Other favourites include the newly formed Australian Sex Party who take similar positions to the Greens on many matters but unfortunately lack clear direction on many other key matters. The same can be said for many of the other minor parties as well, as whilst they have solid positions on their key issues I can’t really vote for them unless their stance on many critical issues is formalized.

After some research (which was sped up nicely by this spreadsheet) I came to the ultimate conclusion that no party fully supports my political vision. I can understand that this is usually the case with any political party as you can’t satisfy everyone but in the past I was able to easily reconcile my differences with the major parties as the issues were usually small. This last term has seen my support for the party I once supported wane without a strong competitor that rose up instead. In the end it looks to be the Greens who will get my vote as whilst I disagree with some of their policies I can reconcile that with the fact that many of my ideas won’t take off in Australia for decades to come, so I might as well go for the people who support the largest majority of my ideas.

Election time always sees discussions over the dinner table with my family about who we’re going to vote for and my weekly dinner with the parents was no different. My father was always a staunch Labor supporter whilst my mother flits between different parties depending on the political climate of the time. This year was quite a different discussion than the ones I was used to as whilst my father said he would be supporting Labor (but wasn’t quite happy about it) my mother wanted to send a message to the Labor government that she wouldn’t tolerate their actions, and so would be voting Liberal. Since they are in one of the most critical seats of Australia, Eden-Monaro, I took it upon myself to see why she felt that way and the results surprised me.

Many of the issues were those you’d find in the popular media. She wasn’t happy with Julia Gillard’s rise to power, felt that the border protection policies were lax and overall didn’t trust the government to bring Australia back into the black over the coming years. I agreed with her on several key points, I wasn’t terribly happy with the way Gillard came into power either, but the fiscal management one caught me off guard. Since my mother had lived through the Labor government previous to this one I thought she would’ve understood why Labor had to spend money during their times in government, but honestly who really does remember what happened 20 years ago?

I can tell you I certainly don’t remember much. The last time Labor was in power I was still in primary school, blissfully unaware of all the goings on. Still my perverse interest in all things financially disastrous had taught me quite a lot about the economic climate of the time, and the similarities to the current government were startling. I asked her “Do you remember what was happening in the early 90s that just happened recently?”. She couldn’t answer and I don’t think many Australians would be able to either.

The answer is: global economic crisis.

Most Australians will remember Paul Keating’s famous line of the “recession we had to have” which was in fact caused by a wider economic crisis that can be traced back to Black Monday in 1987. Whilst everything appeared to recover during the early nighties it was unfortunately shorted lived and many countries, including Australia, plunged into recession because of it. Since the great depression all governments have recognised the ideals of Keynesian economic theory which dictates that during times of recession the government should step in and spending in order to stimulate the economy. Traditionally this is done with deficit spending, I.E. borrowing money, which many people see as being detrimental. However as history has shown not going into debt to avoid a recession will make said recession last that much longer. Indeed we saw the swift action by our government that saw Australia to be the only developed country to avoid a recession, a phenomenal feat especially when the rest of the world couldn’t manage it.

The past 2 Labor governments have presided over an Australia that was ravaged by global economic tides and the notion that all a Labor government does is spend the surplus that the Liberals build up is complete bullshit. Everyone seems to forget that the last Liberal government saw such economic growth and surpluses because it was never hit by a global financial truck that required them to spend their way out of it. Indeed even the Liberal party forgot that Labor delivered a budget surplus in its first year only to have it dashed by the global financial crisis the year after. To say that a Labor government is fiscally irresponsible because they always run a deficit shows a complete disregard for the facts and is nothing more than political spin. My mother also brought out the old chestnut of interest rates being higher under a Labor government, conveniently forgetting the last 3 years.

The fact is that if you’re worried about a Labor government staying in power because you don’t trust them to run the economy think again. They proven that they are completely capable of handling an economy through the toughest times where the Liberals have only shown how they fair when the seas are calm. Additionally if you’re worried about your interest rates I’d point you to the last 6 years of the Liberal government which saw a steady rise of interest rates that only came down under Labor. Really though the interest rates have absolutely nothing whatsoever to do with the government of the day, so please ignore any pontificating you hear when its related to any political party.

Hopefully you’ve learned something from this post and I urge you to spread this knowledge amongst everyone you know. The misinformation around this subject is abnormally high and the media outlets have no interest in setting the records straight. Whilst such information won’t swing the election one way or another it may do the public some good to question what they’re being told and hopefully seek out the truth for themselves.