A new standard in fiscal hairychestedness has been set this week, not in the United States, or Europe, home of almost unimaginable levels of government debt, but right here in Australia. And not from the opposition, despite its theoretical commitment to returning to surplus even faster than the government.
No, up stepped David Murray of the Future Fund to declare that the forecast surplus for next year wasn’t good enough, that there needed to be a “sufficient surplus to stabilise the debt levels”.
“Stabilising debt levels” of course is achieved by not having a deficit, but presumably Murray wants a bigger surplus than the near-token $3 billion forecast for 2012-13.
Murray appears to be alone in this; there’s few economists who are convinced a faster return to surplus — and the one forecast by the government is extraordinarily quick by previous standards — is warranted, even if there are plenty who think the Budget is loaded with spending that could usefully be slashed. Indeed, many take the view that the 2012-13 surplus is purely political and unnecessary.
That’s not the view of the IMF, which on the weekend gave the government’s fiscal strategy the tick.
Perhaps on this score, Murray is showing the same scepticism of economists that he shows about climate scientists, given it’s only a couple of months since he was declaring carbon dioxide was odourless and colourless (he omitted weightless, unlike some others) and not linked to climate change. For Murray, the economics of fiscal policy are clearly not settled.
Murray may well be disappointed, but it’s not yet clear how big the threat is to surplus. As Crikey and others like Nicholas Gruen have pointed out, our budget is more dependent than ever on corporate tax revenue, courtesy of repeated cuts to personal income tax. In particular, the mining and finance sectors are, far and away, the biggest contributors to corporate tax revenue. A global slowdown will reduce commodity prices, but unless Chinese growth seriously stumbles, our miners are still on course for substantial profits over the next twelve months. Domestically, a “two-speed”, “patchwork”, “insert preferred metaphor here” economy will mean the big banks only continue to grow solidly, rather than surge to yet further record profits, though the banks only provide a fraction of the finance sector’s overall tax revenue.
So far, the surplus doesn’t look under serious threat, but the downside risks are now substantially greater than they were back in May, and there’s very little room to move — $3 billion could be wiped out very quickly indeed.
Preserving the surplus — or expanding it, as the nation’s highest-paid climate denialist would want — would become a matter of cutting spending or lifting taxes, and further weakening demand. It might even undermine consumer sentiment further, curbing discretionary spending.
All things considered, there could probably not be a better way to talk ourselves into an economic slowdown than to follow the advice of the fiscal rugged individualists who think debt, point blank, is bad. Watch how they’ll point overseas and use that as evidence of why we should be going all out to slash debt, rather like someone insisting that because the bloke next door went bust after he borrowed too much to feed his gambling habit, you should sell your house to pay off your mortgage.
It’s an economic version of obsessive compulsive disorder and if revenue falls below forecasts next year, it’ll dominate our political debate. Watch.
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