December 21, 2012
Finally the Gillard Government accepts economic reality.
The politics of austerity (savage cuts) is not appropriate when economic growth is low and government revenue has taken a large hit. A slowdown in economic growth means that as you try to achieve a surplus through austerity all you do is drive economic growth downwards.
The economic reality is that annualised growth rate during the quarter was only 2 per cent, and the government's tax receipts in the first four months of the year to June were $3.9 billion lower than estimated. This has been caused by lower commodity prices and competitive pressures on the economy that are related to the Australian dollar not following commodity prices down. The Australian dollar is becoming a reserve currency.
The anti-Keynesian neo-liberals will attack the Gillard Government under the guise of government waste, spending too much money, broken promises, and bad economic management. A national failure the AFR calls it. In the neo-liberal view a budget surplus signifies good management of the economy irrespective of context.
What the neo-liberals won't say is that the politics of austerity involves slash and burn and the privatisation of public services. Will the Coalition go down that road--ie., follow the conservative government’s in the states who are pushing for surpluses at all costs? Or will they back off the spouting the party line in the face of the economic reality of declining economic revenue and reduced government spending?
Labor shot themselves in the foot because they made a budget surplus into a symbol of their responsible economic management. Now that they can’t deliver this will be used to indicate they’re not economically responsible. Therefore they have bad economic credentials.
Labor has been unable to argue the basic principle in the public sphere: namely, that deficits per se are neither good nor bad. What matters is the appropriate use of fiscal policy and the specific purposes of a deficit. They accepted the naive neo-liberal view that getting one’s household in order and paying off the bills was the measure of good economic management of small open economy such as Australia’s.