Politicians can be slow-moving beasts at times. Wayne Swan’s reluctance to mention “deficits” and the Opposition’s suggestion that any competent government needn’t let the budget go into deficit look decidedly out of date at a time when there is global agreement that a major economic stimulus is needed to avoid a prolonged recession. As the Prime Minister noted at the G20 meeting, the issue here is unemployment, which goes up very rapidly in a slowdown but comes down with great reluctance even during boom years. That inflicts a significant social — and budgetary — cost.
We’re therefore entitled to a more nuanced and intelligent debate from our political leaders than we’re getting from the Government’s word games and the Coalition’s inane boasting about how it found it easy to produce surpluses when it was in charge. Arguing over fiscal policy during an economic boom is one thing. The only casualties in such debates are likely to be disappointed rentseekers and small-government types who want always want to cut taxes. But fiscal policy in the face of a major slowdown will have real casualties, and lots of them, if we get it wrong. It’s time to move beyond simplistic assumptions about the automatic virtue of surpluses and consider how Governments can work best to minimise the impacts of the slowdown, regardless of whether borrowing is required.