My Daily Advertiser Op Ed column for this week
by ray goodlass
Budget surplus comes at too high a price
Last Tuesday’s editorial in the Daily Advertiser, which was headlined ‘Ease the burden on strugglers’, took my mind back to an overly boastful Josh Frydenberg crowing that the 2019-19 budget was virtually in balance.
I’ll tease out why Mr Frydenberg’s boast was way off the mark later, but first, let’s look at the editorial. “There are two views on a budget surplus: one is that it is bad and the other is that it is good. The government believes that balancing the books is virtuous. Prime Minister Scott Morrison has the view that a government is like a household and a prudent family does not spend more than it gets in.
But there is another view, one held by many mainstream economists, and that is governments should spend when times are bad to pump up the economy and tax when the economy heats up to cool it down”.
Now to the budget. It was a little over a week ago that treasurer Josh Frydenberg announced the final budget outcome for the 2018-19 year, revealing a deficit of approximately 700m. This was $13.8bn better than forecast in the budget only a few short months ago. Because it is less than .01% of GDP, it can be called “balanced”.
Apart from raising the question about the credibility of the government’s forecasting in particular and the more generic difficulty of accuracy in any such forecasts, this near as dammit surplus raises two questions worth of examination.
The first question that needs an answer relates to how this near surplus was achieved, and the second one is whether budget surpluses are valuable, or even necessary, as the DA’s editorial asked.
It came about because of two things. Firstly, there was $10.5bn more in income tax revenue (individual and company) than was predicted in last year’s budget. The company tax revenue was 5% more than expected, thanks to iron ore exports, and coal prices going up, while the individual income tax revenue was 3% above what was budgeted.
And on the other side of the ledger, there was $4.6bn less in spending on the National Disability Insurance Scheme (NDIS) than was budgeted.
The government would have you believe that this occurred because there is less demand for the NDIS than they expected. The key word used ad infinitum was that the NDIS was ‘demand driven’ and demand had been less than anticipated.
The truth is that the NDIS is massively behind schedule, so clients are not getting the money they need and deserve. Many are getting no help at all. It is yet another example of an initiative by the progressive side of politics being stuffed up by the Liberal/Nationals coalition, just as the National Broadband scheme was.
But over and above the questions of paying off net debt, the real question is why are we so concerned about getting back to surplus, especially as the economy is not performing well?
As the DA editorial noted, when times are tough governments need to prime the pump to get the economy moving and people into real full-time jobs.
At this point we need a dose of figures. A good measure of economic performance is “adjusted nominal GDP growth”, which combines real GDP growth and the annual growth of inflation. Given we aim for between 2.75% and 3.25% annual GDP growth and inflation growth of within 2% and 3%, this suggests a nominal GDP growth of between 4.75% and 6.25% is the level to aim for.
And right now, we are well below it. We have been for most of the past five years. This also raises the issue of the danger of striving for endless growth in a finite world.
During the mining boom the economy was growing well. In such times running a budget surplus is sensible, as it helps take some of the heat out of the economy. But we are not in such times now. The economy is crying out for stimulus, which comes from government spending and if needs be, deficits.
Now is not a time for engaging in chest beating about predicted surpluses and net debt levels in years to come, but rather for worrying about what is to be done to improve the economy now, and therefore the well-being of our society.