The Commonwealth Budget to be presented tonight has been subject to more hysterical overreaction than any I can remember. The forecast deficit of $12b – $18b is around 1% of Australia’s GDP, Australian economic growth is forecast by the IMF to be around 3% in 2013 a slight slowdown from the previous year but forecast to accelerate to 3.3% in 2014. That is plenty of growth in the current world. The US fiscal deficit is around 5.5% of GDP with a median forecast growth rate again of around 3%.
Australian unemployment has edged up a bit to be currently 5.5% while in the US rate it has hit a 4-year low of 7.5%. Clearly unemployment in Australia remains a key concern particularly as we seem to be at the start of a period of sustained weak commodity prices. Larger volumes of mineral exports – even at lower prices – and a weakening Australian dollar should limit the potential for a severe contraction. Australia’s continued growth will continue to be fostered by Asian developments.
It is interesting that the most contentious part of the Budget is the Government’s insistence on maintaining the disability services scheme and the Gonski educational reforms. Yet these reforms seem to have bipartisan support from the Coalition parties. This might change when Tony Abbott is Prime Minister but the main reaction of ther opposition is to seek to stir up fear.
Should we be complacent about a small deficit? Partly this deficit reflects the unsustainable tax cut and handout policies of the Howard-Costello years. Times have changed and so too must budgeting. I am unconcerned about the deficit per se but am worriede a bit about the potential for the disability services scheme to explode over future years. The opposition should be pressing the Government on this and on the details of the Gonski reforms. Its not enough to throw a bit of emotional claptrap around about disabled people and spending more on schoolkids. Yes these are worthy causes but how exactly will the increased spending help?