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South Australia: the deficit hawks « Previous | |Next »
August 11, 2010

I have mentioned the conservative deficit hawks before---in this post on the new austerity and election scripts + mantras who denounce and decry the government’s “irresponsible” and “unsustainable” fiscal policy.

These neo-liberals defend the proposition that they don’t want to have government intervention in economic affairs unless it benefits them. They preach austerity as the solution to recession. The way to prosperity is through austerity by scaling back social spending in order to “stabilize” economies by a balanced budget. This is to be achieved by impoverishing labour, slashing wages, and reducing social spending.

A wave of fiscal austerity is rushing over in South Australia. The deficit hawks are well and truly in control. The Rann Labor Government has set up a Sustainable Budget Commission to assist the Labor Government to move the State’s finances back to a sustainable position following the global financial crisis in order to maintain the state's AAA credit rating.

At that time the State Government was expecting a sharp decline in tax revenue as a result of the Global Financial Crisis (GFC), but since then the fears about a major hit to budget revenues have been replaced by forecasts of growth rather than decline.

The State Government's 'Sustainable Budget Commission' has been operating on the assumption that revenue to the State Budget will decline by around $3.8 billion over the next four years. The rationale for the budget cuts is this:

The global financial and economic downturn has helped push South Australia’s budget and financial position into a potentially unsustainable position, in the absence of corrective action.This is temporary. Ratings agencies recognise this. For now, the State retains its triple-A credit rating.Economic recovery will help restore the State’s finances. But more is needed.The Government has announced a savings target to restore financial sustainability.The Commission’s role is to advise the Government how it can achieve that savings target.Sustainable Government finances are important. South Australia would be a less attractive investment destination without them. Weaker economic and employment growth would be the result.Unsustainable Government finances also ‘cost’ South Australians in the form of higher taxes and less services (eg, for health and education).

The Government's immediate priority is to rein in spending and balance the books after successive deficits. The figure publicly mentioned is $750 from the public sector, which means 1600 jobs. The indications are that the cuts will be much deeper, despite a windfall in GST revenues from the Commonwealth. That means more jobs gone.

SA Health faces a cut of $450 million that is expected to eliminate 4,000 jobs which will will affect hospital and out-of-hospital clinical services; up up to 800 Justice Department jobs are expected to go.

The September budget cuts don't add up, and so the global financial crisis is being used as a rationale to slash and burn. You create an artificial financial or budget crisis, then come in and “save” the situation. Creating jobs is out, inflicting pain is in. Condemning deficits and refusing to help a still-struggling economy in the name of fiscal orthodoxy by neo-liberals posing as hardheaded realists, doing what has to be done.

The argument is that markets are demanding austerity and social justice has to go. That hurts, but it is for a necessary purpose. If we don't do it, the bond markets will downgrade our debt and we will be even worse off. Only austerity can hold off the prospect of a debt crisis, even if that means increased unemployment reduced public services, their schools and hospitals being chronically underfunded.

The implication is that basic government functions — essential services that have been provided for generations — are no longer affordable. The antigovernment campaign to roll back the welfare state has always been phrased in terms of opposition to waste and fraud — in SA today it is the vast armies of bureaucrats uselessly pushing paper around. Nationally it is government waste.

What is rejected by Rann Labor is that when consumer spending collapses in a major recession governments need to borrow and spend to prevent a depression -- and then pay off the debt from the proceeds of growth once we have brought the good times back.

| Posted by Gary Sauer-Thompson at 11:57 AM | | Comments (6)


So the neo-liberals in the political elite cut into “wasteful government spending” with an axe, deliberately undermine those working in the public service, make them unemployed, and force them into a state of welfare dependence. Then they start hacking into the welfare system to deny them the support that the system delivers.

How is this ideological rigidity going to deliver economic growth? It will only exacerbate a slide into recession.

The talk from the Rann Labor Government is about savage job cuts to restore the budget. It is not about economic growth. This is a Labor Government acting like the hard men in the Liberal Party.

What is a fiscal crisis? When does deficit spending become "unsustainable?"

There are lots of deficit hawks around these days --yelling that something terrible will happen if we don’t reduce the deficit.

Basically the the deficit hawks are chicken--they wont slash Defence or the subsidies to the aluminium industry; or the coal industry. They want deficit reduction, but they only want it to be at the expense of the elderly and the poor, hence their attacks on the welfare state and public health.

They want to attack the programs on which so many ordinary working people depend, while protecting the interests of the rich and powerful.

I recall the federal Coalition saying in the run up to the federal election that Greece was warming. The headlines about Greece's financial problems have provided a great backdrop to renewed attacks from the deficit hawks on Labor's deficit. This was a meme in the Australian.

It didn't really makes any sense, but making sense is not a prerequisite for being taken seriously in the Coaliltion or The Australian.

The deficit hawks tell us that Greece today is where the US will be in ten year. Yep the Australian and Greek economies are so alike that what happens to Greece will happen to Australia.

The deficit hawks tell us that the budget deficit means that interest rates will go through the roof and that will squeeze the family budget so that we cannot afford to put food on the table for our kids.

Rann is only a satrap for Brumby, anyway.