May 07

Australia’s Dumb Budget

I don’t have a great deal to say other than I thought I’d take this opportunity to point out, again, that with Australia’s multi-speed economy there is absolutely no logic in having a budget surplus. The budget surplus has become a political football that is not based on logic but is based on some ridiculous perspective that a budget surplus iis what the public wants.

The reality is that there are numerous specific parts of the Australian that are not travelling so well. The high Australian dollar has resulted in weak tourism (Gold Cost, Sunshine Coast, Cairns etc are struggling), weak manufacturing, and weak performing retailers to say the least. The European situation has resulted in a financial services sector experiencing higher funding costs which in order to keep shareholders happy has resulted in thousands of job losses. On the other hand, the mining boom continues….its growth is slowing but its still strong and there are many people moving their careers to the resources sector.

This multi-speed, not so strong, economy requires multi-speed, strong targeted policy to ensure this current weakness doesn’t get worse…and that is only possible with fiscal policy. Monetary policy via the Reserve Bank’s interest rate adjustments is a blunt tool that cannot be specifically targeted to those who need it, particularly when banks decide not to pass on rate cuts.

The Keynes approach, which in this continuing global financial crisis is proving to be more spot on every day, is to save in the good times and spend in the tough times and right now there are many in Australia  who need a little bit of spending on them. Our government has very little debt and don’t let anyone fool you into thinking otherwise….besides, we even have our own currency that can depreciate to boost international investment should things go pear-shaped.

Anyway, assuming we all see the Australian government announce a budget that results in a budget surplus, don’t assume that is good budget but a dumb budget (and the opposition’s focus on a budget surplus should not be forgotten). There is no excuse for not helping those who need help.

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