Sunday, 20 November 2011

MYEFO and the Parliament

Opposition Leader Tony Abbott is being a bit cute arguing that the Parliament should sit during December to consider the contents of the Mid-Year Economic and Fiscal Outlook (MYEFO). It’s cute for a few reasons, not least because there is still no set date for the Government to release this year’s MYEFO.

On that matter of MYEFO timing, in the last three years of the Howard Government, the MYEFO was released on 21 December 2004; 15 December 2005 and 20 December 2006. This was just in time for Santa and no one else. It also meant that there was zero scope for Parliament to consider the content of those critically important releases and any analysis and scrutiny of the contents of those documents was lost in the holiday and partying mode during the festive season.

It’s pretty clear that the last three MYEFOs of the Howard Government were released so late that they would be subject to minimal scrutiny. Mr Costello as Treasurer was no doubt embarrassed that despite massive gains to revenue and the biggest tax take in Australia’s history, there were virtually no net changes to the Budget surplus estimates. This is because in its attempt to hold electoral support, the Howard Government spent all of the extra revenue that the mining boom and asset price escalation delivered.

But at least one group was watching the MYEFO at the time – the RBA. They responded to the irresponsible pro-cyclical fiscal policy of the Coalition Government by jacking the cash rate up until it hit 7.25% in the most protracted rate hiking cycle recorded. Mortgage rates almost hit 10% and the rest is history.

This year’s MYEFO, whenever it is released, will almost certainly be a well rounded policy update. It will show even more fiscal restraint than was the case in the May Budget, it will be doing its bit to keep downward pressure on inflation and there’s not much doubt that as the RBA sees this unfold, its assessment of inflation and other developments will be such that it can keep cutting interest rates.

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