As well as the $43 billion in cuts and tax rises contained in the federal budget which he supports, Opposition Leader Tony Abbott has separately announced at least another $14 billion savings, including his budget-in-reply promise to defer increases to the superannuation guarantee. Furthermore, the Coalition is backing about $13 billion savings Labor announced before the budget, but has yet to implement, including private health rebate cuts, and so far will block almost $6 billion in spending measures contained in the budget..
“The budget is in a mess,” Mr Hockey said. ”We will have to do what we have to do.”
Separately, Tony Abbott has stated that the Coalition has “no plans whatsoever, absolutely no plans to do anything at all to the GST’’ , effectively ruling out any moves to increase its rate or broaden the base.
While the Coalition’s strive back to surplus is good politics, providing the impression that they are fiscal conservatives, it could very well end up being poor economics. As illustrated below, the post-GFC expansion of public debt (spending) was required in order to offset increased savings (pull back in spending) by households and businesses.
The fact is, the best time to have been fiscal conservatives was during the pre-GFC boom in private debt levels, incomes and consumption. Resorting to austerity now, just as commodity prices and mining-related capital expenditures are unwinding, risks contracting demand even further, exacerbating any downturn.
A better alternative would be for the Government to increase productivity enhancing expenditures, such as infrastructure investment, which boost demand, support incomes and jobs, and expand the economy’s productive potential and living standards.
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