From the AFR, Opposition leader, Tony Abbott, has announced that:
It will be better than this after the next election. Australia has seen a Coalition government in action. It gets the budget into surplus, pays down debt and produces assets which provide the kinds of social dividends which Australians came to enjoy under a Coalition government.
Abbott was responding to Treasury modelling this morning suggesting that this year’s projected $1.1 billion surplus could turn into a $4.5 billion deficit, while next year’s projected $2.8 billion surplus could end up $11 billion if the economy continues at its current pace.
While I know that the government of the day has little choice but to aim for surplus across the cycle or risk a downgrade to the country and its banks, this kind of surplus machismo is pretty absurd. If the economy is going to grow at 2%, promising to strip out another $12 billion dollars, which would lower growth another 1%, strikes me as poor idea. Of course it’s possible that the private sector would pick up the slack by expanding borrowing. But more likely in the post-GFC world is that the negative fiscal multipliers that the IMF and others have recently discovered (but have passed the Coalition by seemingly) would result in greater private sector retrenchment and growth would further still.
The Coalition may want to rack up political points on yesterday’s scorecard but they are effectively promising Australians a fiscal cliff of their own (though one less tall than the US’s 4%)!
