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Budget 2016-17 - Returning to surplus - May 2016

Proposition: "The recently released 2016-17 Commonwealth Budget projects that the Australian Government's underlying cash balance will return to surplus by 2020‑21*. Australian politicians should rebalance the budget with greater urgency."

[*Budget Paper No. 1, Statement 3 - Fiscal Strategy and Outlook http://www.budget.gov.au/2016-17/content/bp1/html/bp1_bs3.htm]

Poll responses

Responses

Responses weighted


Responses (22)


 

Peter Abelson

Agree

6

I accept the target as reasonable given our economic and net financial position, but agree with this statement because I doubt that the target will be achieved.


 

Garry Barrett

Strongly agree

9


 

Harry Bloch

Strongly disagree

8

The time to repair government budgets is when the private economy is growing strongly, not when it is stagnating. Now is the time for investing in the nation's future, particularly in education as a well educated population is central to both productivity and creativity. Infrastructure investment is also important, but this is mostly hidden from the budget bottom line.


 

David Butler

Disagree

8

It also depends on why we have a deficit; if due to improving infrastructure, improving incentives for productivity or work it is not much of an issue. It is also a cheap time for Government to borrow for these investments. If we were in a boom as ten years ago I'd be keener on balancing the budget.


 

Lisa Cameron

Disagree

8

Australia's government debt to GDP ratio, although increasing, is not high by international standards, and far lower than that of the US and European countries. It is also not particularly high relative to the past (lower than 1880-1970). To the extent that governments should be looking to reduce the budget deficit, the focus should be on increasing revenue rather than cutting government expenditure. Government expenditure as a percentage of GDP is relatively low compared to other wealthy countries. Empirical evidence that cutting (raising) taxes significantly boosts (hinders) economic growth is weak.


 

Fabrizio Carmignani

Strongly disagree

10

The obsession for balancing the budget has made already enough damage (in Australia and overseas). The fiscal multiplier in Australia is greater than 1, so fiscal policy should be run counter-cyclically and the budget should stay in deficit as long as the economy is in a contraction (as it is the case now: the output gap is still significantly negative). Those who urge the government to balance the budget make two mistakes. First, they forget that the budget is a tool; hence balancing the budget cannot be the ultimate goal of fiscal policy. Second, they forget that debt sustainability is a matter of economic growth. The only thing that could make debt unsustainable in Australia today would be the decision to rebalance the budget in a time of economic contraction.


 

Deborah Cobb-Clark2

Agree

9


 

Brian Dollery

Strongly agree

2

Turnbull Government budget is based on heroic assumptions and thus expenditure and revenue projections are implausible, to put it mildly. It would seem that both sides of Australian politics have simply given up on the urgent task of 'budget repair'.


 

Uwe Dulleck

Disagree

8

I don't think Australia faces the budget emergency that is/was mentioned frequently in the past. Given that I see Australia still on a growth trajectory (if only due to ongoing population growth via net-immigration) there is no urgency to reduce debt levels - which are anyway low in international comparison. So, as long as Australia does not go on a (sustained) spending spree, there are no major risks to its economy.


 

Saul Eslake

Agree

6

I would be more comfortable with the currently foreshadowed level of deficits and debt (or indeed, even higher ones) if they had been financing a higher level of infrastructure investment (provided that the specific investments had passed rigorous and transparent evaluations). However they are largely financing 'recurrent' spending - and Australia shouldn't be running such large 'operating' deficits when economic growth is running (as it is) reasonably close to 'trend' and when the unemployment rate is falling. There's an element of "I wouldn't be starting from here" about this response, in the sense that my view is less along the lines of "there should have been more spending cuts or tax increases in this budget" than it is "the position should never have been allowed to reach where it is today".


 

Allan Fels

Strongly agree

8


 

Gigi Foster

Disagree

8

Many OECD nations have quite similar fiscal situations as Australia, and politicians' harping on about the national deficit - like the harping on about national debt - seems driven mainly by the desire to be seen by voters to care about something important rather than to do what best promotes social welfare. The plan to recover surplus gradually by 2020-21 seems reasonably aligned with the strategy of spending into deficit when times are tough, in order to prop up the economy, and getting back into surplus at a steady pace (as well as spending down the national debt, when possible) during better times. Some opportunity to recover fiscal strength was lost during the mining boom, but that is a story for another question.


 

Stephen King

Disagree

9

The current level of Australian government spending and government debt is not high by the standards of most developed countries. Further,  Australia is still in a period of adjustment as the end of the resource price boom leads to a change in economic activity from the north and west of Australia back to the south-east, and from mining to services. So this is not the time to be dramatically curtailing government activity. Of course the real question is whether the prediction of a return to an underlying budget surplus by 2020-21 is realistic. I doubt it! Unless there is a dramatic rise in both Australia's and the world's economic activity (leading to increased tax revenues for the federal government) I suspect that the projection of a surplus by 2020-21 is not realistic.


 

Geoffrey Kingston

Disagree

7

The Swan-Hockey era saw over-estimates of tax receipts for 8 fiscal years in a row. The inaugural Morrison budget of 2016-17 will probably mark the ninth successive occasion on which revenue growth has been over-estimated. This chronic over-estimation on the part of Treasury is unnecessary, as the efficiency and accuracy of budget forecasts of tax revenue can readily be improved by a simple adjustment involving National Accounts data on household saving behaviour.


 

Michael Knox

Agree

8

We know in theory that we do not require fiscal stimulus when monetary policy is above the zero bound. Even with a cash rate at 1.75% we are still above that point.      The problem though is that rent seeking lobby groups continue to support spending for this or for that. This is usually dressed up as "good for growth".         In practice even the zero bound has not proved a barrier to further monetary stimulus. Quantitive easing in the US, in the UK and now in Europe has taken up the task of stimulus at the zero bound previously reserved for  fiscal stimulus.      With growth then adequately supported by monetary policy we may the safely approach the issue of narrowing the fiscal deficit in order to preserve the high rating of our national debt.


 

Rodney Maddock

Strongly agree

8

Running a deficit to pay for recurrent expenditure is just stealing money from our kids who will have to pay it back. The policy might be justified in a recession but the economy is growing. It is also important to bring the budget back into balance quickly as the problem will get progressively harder over the next decade with NDIS and other health expenditure rising.


 

Tony Makin

Strongly agree

10

Balancing the federal budget is essential to stem Australia’s rising public debt. It is fallacious to assert Australia’s public debt is not a macroeconomic problem because it is lower than other OECD economies. Australia’s public debt has been one of the fastest growing in the world since the GFC, and unlike other advanced economies, is mostly owed to foreigners (two-thirds). Federal government borrowing, unlike the States’, mostly funds consumption, not investment-related expenditure and as a result, Australia is technically insolvent: the federal government’s negative net worth position is about 23 per cent of GDP. Public debt Interest paid abroad subtracts from national income and is three times Australia’s foreign aid budget. Australia’s public debt exceeds the level at the time of the 1986 credit rating downgrade from AAA status. The economy is at risk of another downgrade due to the failure of successive federal governments to rein in government spending since the GFC. A downgrade would raise interest costs across the board, including for state governments and the major banks. How the budget is balanced however is critically important. Tax rises are contractionary, whereas the impact of spending cuts depends in the medium term on whether they are in the nature of consumption (expansionary) or investment (contractionary).


 

Warwick McKibbin

Strongly agree

9


 

Flavio Menezes

Disagree

9

Generating budget surpluses cannot be an objective in itself. In the case of our economy, the key concern is that the budget deficit is structural – caused by declining government revenue and increasing expenditures (including tax concessions). That is, in the absence of structural reforms (raising taxes or decreasing expenditures or a mix of both), the deficit will continue to exist and public debt will continue to grow. Thus, the issue is not that the budget has to be returned to surplus by a particular date – after all our debt remains very low by international standards – but rather whether a credible path for returning to surplus has been set.


 

James Morley

Disagree

9

Fiscal policy should be conducted in a way that helps achieve stable macroeconomic outcomes, while at the same time being consistent with debt sustainability. It is important to note that this conduct could be entirely consistent with an absence of a budget surplus between now and 2020-21. The appropriate level of the budget balance will depend on a number of factors and, subject to current expectations about the debt-to-GDP ratio, should not be dogmatically set to surplus if it is at the cost of achieving stable macroeconomic outcomes.


 

John Quiggin

Disagree

7

A headline deficit of two per cent of GDP is consistent with a stable debt/GDP ratio around 30 per cent and is therefore roughly neutral, which is appropriate in an economy which is still growing but shows signs of weakness.


 

Rana Roy

No opinion

9

I am sorry to say that I cannot answer the question for the simple reason that I cannot accept its premises. I refer in particular to the projected cumulative growth of nominal and real GDP growth over the period in question, including at three and five per cent per annum, respectively, from 2017-18 inclusive. IMO, the cumulative growth will undershoot these projections by something like 50% - but I am quite prepared to consider informed opinion to the contrary.  But in any event it does not make sense to substitute an automatic default assumption in place of an informed assessment for the medium term – surely that is something that should be reserved strictly for the long term. To put it another way, I can offer no comment as a fashion critic of the “return to surplus” when the obvious point to be made is that the Emperor has no clothes. It is only when the Emperor is prepared to put on some clothes that we can make a judgement on the degree to which we need to tighten the belt.