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Fiscally conservative Labor & the spendthrift Coalition

Steve Koukoulas points out in Business Spectator  that the final budget of the Gillard Government was the most contractionary since 1971.  The deficit was 1.7% lower in real terms than in the previous year.  (Recall that the stance of fiscal policy is measured by the change in the deficit not its level).  Government spending fell to 24.3% of GDP from 25.2% in the previous year.  That is a substantial negative fiscal shock that will – if anything – push the economy towards lower levels of economic activity.  I wouldn’t have thought this was the most appropriate policy but it puts a lie to the claim that the budget was excessively expansionary.

Indeed it is sometimes surprising that back to the Gorton, Coalition Governments have never cut fiscal spending in real terms.  Over this period Labor has done this on 5 occasions including in 2012/13.

Again I pass no judgment on the wisdom of such policy stances.

Koukoulos points out (as has been, in fact, repeatedly pointed out) that Australian public sector debt is trivial and so on.

Labor was fiscally conservative. The Coalition, when it got big surpluses, spent them.

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