WSJ agrees: Aussie budget was a disaster

 

 

 

 

 

 

 

http://online.wsj.com/article/SB124276290558535937.html

Australia’s top economic civil servant isn’t happy with our recent critique of his country’s remarkably profligate budget. His reasoning is worth parsing to understand the policy logic now dominant Down Under.

Secretary to the Treasury Ken Henry told a Sydney audience yesterday that the negative reaction to last week’s budget was a “communications problem.” That’s true. It’s hard to explain how Canberra can go in one year from projecting a 23.1 billion Australian dollar (US$17.7 billion) surplus to delivering an A$32.9 billion deficit — the biggest in the country’s history.

Mr. Henry took issue with our assertion that Australia would have had a fiscal surplus were it not for the Labor government’s spending free-for-all. But his budget explains the economics. Treasury estimates annually the “effects of policy decisions” versus “effects of parameter and other variations” on the budget. The former is controlled by policy makers; the latter is not. The government started last year with a A$23.1 surplus projection. “Policy decisions” accounted for A$34.7 billion in revenue losses, while A$21.3 billion of losses were due to outside forces. You do the math.

Mr. Henry also takes on this quote from last week’s editorial: “This Keynesian revival comes at a particularly bad time, given that tax revenues are falling as the economy slows, a normal feature of economic downturns.” He concludes: “Apparently, the right time for a ‘Keynesian revival,’ involving the spending of large amounts of public money, is when tax revenue is strong and rising, a normal feature of economic boom times.”

Actually, there is no “right time” for a Keynesian stimulus if it is merely a government spending spree, and Australia’s history bears this out. Over the last three decades, both Labor and Liberal governments have reduced the public sector’s role in the economy through tax cuts, labor market liberalization, privatizations of state-owned enterprises, and more — enjoying 17 years of uninterrupted growth.

As for deficits, it’s normal for governments to go into the red during a recession as tax revenues drop and unemployment claims rise. But there is a difference between deficits that result from policy decisions to stimulate incentives to work, save and invest — like tax cuts — and deficits that reflect blowout spending aimed at pleasing voting constituencies. The best way to raise tax revenues is to grow the economy by empowering the private sector, not by expanding government.

Mr. Henry isn’t a political appointee, but his arguments largely mirror Prime Minister Kevin Rudd’s policy trend. He declined our request for comment through a spokesman. The Australian people, at least, seem to understand what Mr. Henry dubbed our “bad” editorial: According to a recent national poll, Mr. Rudd’s approval ratings dropped six percentage points after the budget announcement.

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http://money.ninemsn.com.au/article.aspx?id=815858

Public angst over last week’s Federal Budget has resulted in a huge slide in consumer confidence.

The Westpac Melbourne Institute Consumer sentiment index, which tracks how the public feels about economic developments, fell by 4.3 percent in May, its second largest post-budget fall in ten years.

Westpac chief economist Bill Evans said the result showed that consumers do not expect the government to issue more stimulus payments in the form of cash bonuses.

“It is reasonable to conclude that consumers did not see the Budget as a positive for their own finances and are focusing on the temporary nature of the fiscal handouts and the apparent limited scope for further fiscal stimulus over the years ahead,” he said.

Westpac also found that the Budget, which featured a $58 billion deficit and warnings of an unemployment rate of 8.5 percent, caused a huge fall in people’s expectations of how the economy will perform over the next 5 years.

“The short term economic outlook was unchanged whereas ‘economic conditions over the next 5 years’ was down by an extraordinary 13.6 percent,” Mr Evans said. “This is the second largest fall in this relatively stable component in the last ten years and probably indicates that consumers have been unnerved by the sharp rise in the government’s deficit and the associated ballooning of the national debt.”

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“there is a difference between deficits that result from policy decisions to stimulate incentives to work, save and invest — like tax cuts — and deficits that reflect blowout spending aimed at pleasing voting constituencies.”

aint that the truth..he gave 52 billion away as handouts..and now the people are seeing what they elected..and what promises get broken and how quick we are a deficit country again

401

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~ by seeker401 on May 20, 2009.