Sunday, 1 April 2012

What's the Surplus Alternative?

There are many commentators suggesting that the Gillard Government's objective for a Budget surplus in 2012-13 is inappropriate given the economic outlook.

I have read a lot of that commentary and have not seen one of them, not one, suggest what their target for the deficit would be.  Is it a deficit of 0.2% of GDP?  0.5% of GDP?  A puny 1.0% of GDP?  2.0% of GDP?  Come on, say it.

None of them have mentioned what the abandonment of the surplus objective for 2012-13 would mean for interest rates and the Australian dollar.  I can only assume their deficit tolerance would fit perfectly with a higher interest rate structure and an even higher Australian dollar than we are seeing now.

As a result, none of the commentary suggesting that the surplus objective is wrong is worth a cracker. It is useless analysis.

Until I see one of these commentators say what the Budget deficit objective would be,what their deficit strategy would mean for interest rates and the Australian dollar, I and all others should treat their views with the disregard and contempt they deserve.


  1. I wonder what Treasury are advising? Do they think it is appropriate? And what of the Oppositions determination to have an even bigger surplus, by saying "Ours would have been bigger, and more real"?

  2. I initially thought the surplus goal was nonsense too as it seemed 100% politically motivated (prove Labor can manage economy after spending to ride out GFC). But I now think the goal is right given the weaknesses in the global economy. Things are not getting better any time soon and it's best to have some surplus to ride out the bad times.
    But I'm not an economist!

  3. Macroeconomically, I think it currently makes amazingly little difference whether the 2012-13 budget deficit is 0% or 2% of GDP. But in terms of the government achieving its other priorities - things like a national disability scheme, or relief for the long term unemployment our 2-speed economy is already causing - it makes a huge difference.

    Their problem is a political, not economic, one - they made a stupid promise and feel bound to keep it.

  4. As one such "commentator" - the budget deficit that achieves frictional unemployment.