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What’s so good about a budget surplus?

A return to surplus would make Wayne Swan happy, but its economic benefits are contested. AAP

The Federal Government has come under renewed scrutiny over its commitment to bring the budget into to surplus by next year, with Delloite Access Economics forecasting a deficit of $1.9 billion for 2012-13.

Treasurer Wayne Swan has warned of possible spending cuts, but says the government remains committed to the surplus despite uncertain global economic conditions.

How important is it that Australia returns to surplus? It’s worth catching up with some of The Conversation’s coverage of this important – and highly contested – question.

Saul Eslake, Program Director, Productivity Growth, at The Grattan Institute:

“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.” Read the full article

Sinclair Davidson, Professor of Institutional Economics at RMIT University:

“What few people appreciate is that government can crowd out private behaviour even when the economy is not at full employment. Deficits and debt financing cause crowding out.” Read the full article

James Juniper, Lecturer, Newcastle Business School at The University of Newcastle:

“Conventional fears about deficit spending rely on the entirely spurious notion that government must finance their spending either by "printing” money or issuing bonds.

While the former is seen as inflationary, the latter is also viewed with concern because bond sales clearly drive up interest rates.

While this all-too-prevalent notion of a budget constraint is true of households, and for that matter, state governments – each of which have to draw down wealth or increase borrowing to consume over and above their income – a Federal Government, which can issue its own fiat currency, simply spends by crediting the central bank accounts of the commercial banks.“ Read the full article

Associate Professor Colin Rogers, School of Economics, University of Adelaide:

"The structural budget balance is an estimate of the budget balance excluding the cyclical factors. While media attention is paid to the cyclical budget, it is the structural budget balance that signal changes in fiscal policy. Few in the financial and political media fully understand this concept, and few academic economists are able to explain it coherently to a general audience. All federal budgets have a built-in structure that increases the tax revenue intake during booms while simultaneously reducing government expenditure and transfers – and vice versa during a recession.” Read full article.

Professor John Wanna, director of research in public administration, Australian National University

“The surplus has become a sort of leitmotif of good government but it doesn’t need to be. We saw in 2008-09 governments were quite happy to run a deficit, and in those years they didn’t face a barrage of criticism because of the worries of business and the community generally around the global financial crisis.” Read full article.

Tim Battin, Senior Lecturer, Faculty of Arts and Sciences, School of Humanities, University of New England

“For the past three decades, a period termed the neoliberal era, Australia has suffered increasingly from what some economists and various commentators have called "deficit fetishism”, a disease manifesting itself in a stated belief that a deficit is (almost) always to be avoided, while a surplus is (almost) always to be preferred. Despite the valiant efforts of some authoritative people to kill off this idea, it lives on. While there is room for legitimate disagreement among economic and social policy commentators about the degree and nature of budgetary shifts needed at any one time to take account of changing circumstances, deficit fetishism is simply mindless.“ Read full article.

Rhonda Sharp, Adjunct Professor, Education, Arts and Social Sciences, University of South Australia

There will be serious implications for different groups of people in society if we pursue this road towards surplus. Part of this depends on whether we are going to promote the surplus budget through spending cuts or tax increases because you get two very different impacts depending on which route you go down. There are consequences around what type of spending cuts the government makes… In the case of the deficit reduction, which is the focus of this budget, we are in danger of reversing trends towards gender equality.” Read full article.

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