Via the Macrobusiness website, the review of the budget (PDF) from Commonwealth Securities
Did the Government get it right?
- This is the first Budget by an incoming Government. So you would expect it to be tough. And you would expect the Government would start rolling out its agenda – its plan for the economy.
- The Government believes that urgent action is required to reduce the budget deficit and government debt – both in the short-term and the medium-term. So, similar to Peter Costello in his first Budget in 1996/97, the Government is aiming to markedly tighten fiscal policy. Peter Costello slashed $5.8 billion from the Budget bottom line in 1996/97 and $9.8 billion in 1997/98. The Budget was cut from 2.1 per cent of GDP to a small surplus in two years.
- But they were also different and more buoyant times for the economy. The economy grew by 3.9 per cent in 1996/97 and then by 4.5 per cent and 5.0 per cent in t he following two years. At best, the economy may grow by 3.5 per cent in the next few years, but more likely by around 3 per cent per annum.
- While the desire to “reboot” the economy is commendable and even advisable from a medium-term standpoint, the “budget emergency” rhetoric has been unduly negative, depressing confidence levels. It remains to be seen whether there is a lasting negative impact on t he economy, checking momentum in the economy.
- The spending on infrastructure is also important from a medium-term standpoint. But it also isn’t new. If you were to review budgets over the past few years you would have found emphasis being placed on infrastructure.
- The increase in the excise on petrol can be justified on revenue raising grounds, its “green” credentials in boosting demand for public transport and lifting infrastructure spending. But it is regressive in nature. And it complicates monetary policy by boosting inflation. The deficit tax serves little purpose in reducing the Budget deficit and is more of a political, rather than an economic measure.
More at the link
