In the face of the global financial crisis of 2008-09, the Australian Government’s overall fiscal policy response was both well-timed and well-calibrated (even if some of the specific programs within that response were rather less than optimal in their design and execution).

And since, as it turned out, Australia’s experience of the global financial crisis was considerably more benign than that of most other Western countries (in part because of that fiscal response), returning the budget to surplus has been the Right and Proper Thing To Do (as Stanley Holloway’s Alfred P. Doolittle might have put it).

But there has always been something bordering on the maniacal about the Government’s insistence that the Budget must return to surplus, come hell or (as seen in the aftermath of the Queensland floods) high water, by the 2012-13 financial year.

It was never critical to a judgement as to the soundness or otherwise of the Government’s economic policy credentials whether the Budget was marginally in surplus in the twelve months ended June 2013, as opposed to (say) the following financial year, so long as the trajectory of the Budget’s bottom line was clearly in that direction.

The Government’s insistence that the Budget be in surplus by 2012-13 was rather always a political objective, borne (it would seem) out of a desire to refute assertions by the Opposition that the present Government had never presided over, and would never deliver, a Budget surplus.

Hence the Government has gone to extraordinary lengths to contrive that outcome. It insisted on imposing temporary increase in income tax in order to pay for part of its share of the costs of providing assistance to victims of the Queensland floods, and repairing or rebuilding infrastructure damaged by those floods – even though financial markets would not have thought ill of the Government if some of those costs had been met by additional borrowings.

And it will pay $2.7 billion of compensation to households and assistance to industry by way of compensation for the carbon tax that will come into effect on 1 July 2012, in the last few weeks of 2011-12, in order to avoid that spending detracting from the surplus proposed for 2012-13 – even though that amount will more than swamp the revenue to be collected in 2011-12 from the ‘flood levy’ that the Government insisted was essential to ‘good economic management’.

Now the economic assumptions underpinning the projected return to surplus by 2012-13 are looking a little more questionable. Although I don’t think it is necessarily the most likely scenario, financial markets are increasingly anxious that the United States and Europe could be slipping back into recession.

And although neither the US nor Europe “matter” to Australia’s economic fortunes as much as they once did, were either of them to experience recessions, Australia’s economic prospects would undoubtedly be adversely affected to some degree, in ways that would detract from projected revenues and perhaps add to projected expenditures.

Significant further declines in household wealth, through falling share prices, could also adversely affect budget revenues and expenditures, by prompting even greater caution on the part of Australian households as regards their spending behaviour.

To insist, in these circumstances, that the Budget must still be in surplus by 2012-13, even if that required further tax increases or discretionary cuts in government spending, would be to accord what is essentially an accounting measure far more status than it merits.

It would risk exacerbating what would already be a more fragile economic situation than had been anticipated when the objective of returning the Budget to surplus was initially formulated.

Wayne Swan has previously said, in defending that objective, that “if we are to be Keynesians in the downturn, we have to be Keynesians on the way up again”.

That’s absolutely correct. Keynes is also supposed to have said “when the facts change, I change my mind” (although I have never found it in any of his writings that I’ve read).

Nonetheless, if we do find ourselves confronting a renewed downturn in the Australian economy, then whether we call ourselves Keynesians or not, the right thing to do would be to drop the insistence that the Budget must be in surplus in 2012-13.