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Swan says budget surplus now unlikely: experts respond

Wayne Swan tells journalists the government’s promised budget surplus is now unlikely to be delivered. ABC News

Treasurer Wayne Swan has acknowledged it’s unlikely the government will deliver the budget surplus it had been promising for next year, following the release of a disappointing monthly financial statement for October.

“There has been a substantial hit to profits that Australian companies have experienced in the early months of this financial year,” Mr Swan told journalists in Canberra today.

The government had planned to deliver a surplus of $1.1 billion for 2012/13, however today’s October financial statement showed falling cash receipts, with a $3.9 billion reduction in the four months to November.

“What we’re seeing in our own numbers today means that $160 billion has been ripped from the budget bottom line over five years,” Mr Swan said.

He argued that it was falling revenues rather than increased government spending that was hurting the budget outcome, adding that it would not be responsible for the government to continue to make up the revenue hole if it threatened growth or jobs.

The Conversation has collected expert reaction to this news from economic, business and political experts.

Sinclair Davidson, Professor of Institutional Economics at RMIT University

It was inevitable, mostly because this is a government that spends too much money.

Every year they’ve been talking about cuts but these cuts have always been on future expenditure or proposed expenditure. They’ve never actually cut current expenditure.

I think the government has been right in trying to return to a budget surplus. It is good policy to have a budget in balance or surplus rather than deficit.

Unfortunately they haven’t had the fiscal discipline to cut the spending they should have.

The problem with planning to go into deficit is when the unexpected happens it makes it very difficult for you to return to surplus.

They spent too much on the stimulus packages in 2009.

Of course they will argue that they’re doing much better than our friends in Europe or North America. But we’ve got to be in a good position relative to our own expectations of where we should be and we’re not at that level. We’re not where we should be.

One of the big problems with these fiscal crises is they kind of sneak up on you. In 2005/06 the Western countries were saying “We’re fine”, and that turned out not to be the case.

George Argyrous, Senior Lecturer at University of New South Wales

The attempt to achieve a surplus bought about its own undoing – as you try to achieve a surplus through austerity all you do is drive economic growth downwards, with the implication you’re more likely to get a deficit.

They’ve actually contributed to bringing about a deficit rather than achieving a surplus.

When you look at the dynamics of the effect of government spending on the operation of the economy, that’s what you get.

What the government should do is just accept that occasionally governments go into deficit and that’s a normal way of coping with slowdowns in growth.

Its like someone running up a hill - you have to breathe hard to get up the hill but you relax a bit when you’re coming down. The economy’s still running up a big hill.

If the politics of ditching the commitment to a surplus was ever going to be in place it’s now. Even business groups are lining up to say a surplus is not the way to go at the moment.

Most people would understand that occasionally you have to go into deficit to finance key spending. As long as the government does it wisely the same logic should apply.

It surprises me that the government hasn’t used this as a political tool in its favour to differentiate itself with conservative governments in the States who are blindly pushing for surpluses at all costs.

I think that would have been a strong political message but they gave themselves no back door. It was all so predictable.

John Wanna, Sir John Bunting Chair of Public Administration at Australian National University

Unlike most macroeconomic commentators, I actually think it was worth the government aiming to bring a balanced budget in.

That has been a big control on their spending, and I think that has been important.

Having now realised that they’re going to have to relax that commitment is probably pragmatic, and probably expected. But I think having that target was important: because when governments don’t have targets, it makes them flail around a lot more.

That said, the target wasn’t achievable, mainly because of the lack of revenues coming in — not because of government spending.

Gregory Melleuish, Associate Professor, School of History and Politics at University of Wollongong

I wonder whether it was all inevitable. At some stage they were going to have to bite the bullet on the fact that the surplus might not be achievable.

The Labor Party was trapped by the idea that it was going to achieve a surplus, using that as a measure of their economic credentials. So they invested an awful lost of political capital into that idea.

It’s interesting that Swan has said it’s not about the fact they’re spending too much, but about the fact that revenues have dropped off considerably. It’s interesting too the news that has come out that Queensland also had a considerable decline in its revenue. I suspect that this is the case across the states, which is why we’re hearing noises about things like wanting to increase the GST.

Labor were hoisted on their own petard because they made this into a symbol of their responsibility and if they can’t deliver, then this could be used to indicate they’re not economically responsible. To understand this you have to go back to the history of the Labor party. The Whitlam government was seen as financially irresponsible, so Hawke and Keating went out of their way to develop their economic credentials, and they did that very successfully.

This time the Labor party has had the GFC, and the question is whether they can continue to be identified with Hawke and Keating rather than Whitlam, which some people might now wish to do.

Tim Battin, Senior Lecturer, Political and International Studies, School of Humanities, at the University of New England

The surplus admission from Wayne Swan is not surprising. But what is remarkable is the way in which he got himself cornered in trying to achieve a surplus, when international conditions didn’t favour a budget going to surplus.

It wouldn’t have been good policy to try and persevere when the conditions didn’t warrant it.

I think the taxation debate is a healthy debate to have — to discuss our revenue requirements. One possibility is that unless some people seize an initiative and look at the way in which our revenue is inadequate — that is, our tax is too low — the initiative will certainly be taken up by others who will argue that we need to increase direct taxation.

Already we are starting to see some people suggest that the way to get more revenue is to increase the rate and base of the GST.

People like Wayne Swan, one thinks, should be in there trying to formulate a different kind of debate, or different terms on which the debate takes place so that we look at our total tax base: inheritance taxes, tax on the wealthy, tax expenditures — which overwhelmingly benefit those who are well off — and so forth.

Nick Economou, Senior Lecturer, School of Political and Social Inquiry at Monash University

This announcement is a reality check about a number things.

It’s a reality check about the state of the Australian economy. But it’s also a reality check about any idea that the government might have been going to a March election.

They were beginning to believe their own rhetoric about how well they were doing in the polls, but the last Newspoll has reversed that trend.

So it looks like the strategy now will be to say to the community: look, in the interest of realism we have to abandon this silly idea of a surplus. It’s probably the wise thing to do – most responsible economists would agree.

But will this damage them electorally? It seems to me that they’re already damaged anyway. They could make a virtue out of being seen to be pragmatic. Say to the voters: we had this promise of the surplus but the economic situation now doesn’t warrant it, we’re responding to what’s going on.

The opposition will criticise them no matter what they do. So it’s a wise move for them to make but they need to start changing the prevailing political winds. What they’re trying to do is they’re trying to paint Tony Abbott as the ideologue – a catholic ideologue, a conservative ideologue – ideologues don’t change, they don’t respond to changing conditions.

So politically I think it’s in the government’s interests to change their position. But for better or worse, it’s still the government and as such it can set the agenda, it can get it through parliament with little opposition in the Senate or from the cross benchers, so I don’t think there will be too much adverse reaction.The coalition will go berserk, but the danger for Gillard is that he might try to weave this into a general critique of her as someone that you can’t trust. But Abbott hasn’t proven to be very effective recently in landing too many punches so he needs to link this in with that more general critique of trustworthiness.

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