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Aug 11, 2011

David Murray takes on the fiscal consensus

Despite widespread agreement that the government doesn't need to return to surplus next year, one figure wants us to go harder and faster.


A new standard in fiscal hairychestedness has been set this week, not in the United States, or Europe, home of almost unimaginable levels of government debt, but right here in Australia. And not from the opposition, despite its theoretical commitment to returning to surplus even faster than the government.

No, up stepped David Murray of the Future Fund to declare that the forecast surplus for next year wasn’t good enough, that there needed to be a “sufficient surplus to stabilise the debt levels”.

“Stabilising debt levels” of course is achieved by not having a deficit, but presumably Murray wants a bigger surplus than the near-token $3 billion forecast for 2012-13.

Murray appears to be alone in this; there’s few economists who are convinced a faster return to surplus — and the one forecast by the government is extraordinarily quick by previous standards — is warranted, even if there are plenty who think the Budget is loaded with spending that could usefully be slashed. Indeed, many take the view that the 2012-13 surplus is purely political and unnecessary.

That’s not the view of the IMF, which on the weekend gave the government’s fiscal strategy the tick.

Perhaps on this score, Murray is showing the same scepticism of economists that he shows about climate scientists, given it’s only a couple of months since he was declaring carbon dioxide was odourless and colourless (he omitted weightless, unlike some others) and not linked to climate change. For Murray, the economics of fiscal policy are clearly not settled.

Murray may well be disappointed, but it’s not yet clear how big the threat is to surplus. As Crikey and others like Nicholas Gruen have pointed out, our budget is more dependent than ever on corporate tax revenue, courtesy of repeated cuts to personal income tax. In particular, the mining and finance sectors are, far and away, the biggest contributors to corporate tax revenue. A global slowdown will reduce commodity prices, but unless Chinese growth seriously stumbles, our miners are still on course for substantial profits over the next twelve months. Domestically, a “two-speed”, “patchwork”, “insert preferred metaphor here” economy will mean the big banks only continue to grow solidly, rather than surge to yet further record profits, though the banks only provide a fraction of the finance sector’s overall tax revenue.

So far, the surplus doesn’t look under serious threat, but the downside risks are now substantially greater than they were back in May, and there’s very little room to move — $3 billion could be wiped out very quickly indeed.

Preserving the surplus — or expanding it, as the nation’s highest-paid climate denialist would want — would become a matter of cutting spending or lifting taxes, and further weakening demand. It might even undermine consumer sentiment further, curbing discretionary spending.

All things considered, there could probably not be a better way to talk ourselves into an economic slowdown than to follow the advice of the fiscal rugged individualists who think debt, point blank, is bad. Watch how they’ll point overseas and use that as evidence of why we should be going all out to slash debt, rather like someone insisting that because the bloke next door went bust after he borrowed too much to feed his gambling habit, you should sell your house to pay off your mortgage.

It’s an economic version of obsessive compulsive disorder and if revenue falls below forecasts next year, it’ll dominate our political debate. Watch.


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49 thoughts on “David Murray takes on the fiscal consensus

  1. Suzanne Blake

    The chances of Swan delivering a Surplus in 2012/2013 are poor.

    He will be itching for an excuse, and I bet he picks the latest global events to spin a yarn.

  2. Murray Hall

    It certainly is terrible that David Murray holds a different opinion on debt. Didn’t he get the memo that everyone had to say the same thing?

  3. Suzanne Blake

    @ Murray Hall

    Perhaps he is not on the 6am, 11am, 3pm, 8pm ALP Spin Email List or it goes to his junk email.

  4. Michael James

    Jesus Crikey, you trying to create your own version of Godwin’s Law.

    Murray makes a comment on government policy relating to debt and you drag out his position on climate change, which has no bearing on the subject. You do it not one but twice, as if his position on one contentious subject immediately disqualifies him from commenting on anything else.

    Personally I agree that Murray is mistaken on the budget deficit approach, but his politics on climate don’t have a bearing on the subject being discussed.

    Demonising people for their position, even if it’s something you don’t particularly agree with, hardly supports free speech, something Crikey claims to stand for.

  5. stephen martin

    “Stabilising debt levels” of course is achieved by not having a deficit,”
    Why that interpretation? – surely stabilising it could equally mean at it’s present level, no better, but no worse.

  6. The_roth

    @ Michael James – it would have been way funnier if you’d written crikey, Crikey!

  7. Rodger

    Australia’s government debt per GDP is the lowest in the OEDC (en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt) and 107th in the world.
    But let’s reduce it further.
    I suggest reduced government spending to levels just above those that cause riots and looting.

  8. Harvey Tarvydas

    Dr Harvey M Tarvydas

    Well done BK, but surely they can all see that he’s just drunk which is a very common and fashionable affliction.
    Let him go back to sleep and when he wakes next decade everything will be smooth as and he won’t be stressed by worldly difficulties.

  9. Captain Planet

    @ Stephen Martin

    Debt = how much money you owe (total)
    Deficit = how much more you spend than you earn, in a given period (e.g. 1 year)
    Surplus = how much more you earn than you spend, in a given period

    Therefore no deficit and no surplus = debt remains the same (stable)

    Deficit = increase in debt

    Surplus = reduction in debt

  10. William Fettes

    Little bearing, perhaps, but I wouldn’t say it has no bearing. After all, there’s probably some kind of correlation between having drastically wrong-headed views on well-publicised matters of public policy like climate change, where the scientific literature is clear and well vetted, and having a similarly untethered approach to public policy issues in relation to your own specialty, economics.

    You can’t assume one from the other, because obviously you can be a subject matter expert about one topic, and remain pretty ignorant about matters outside that. But some people are just flabby thinkers, and if they show a tendency to repeat crappy source material, you can bet that lack of rigour is apparent in other areas of their thinking.

  11. Harvey Tarvydas

    Dr Harvey M Tarvydas

    I think really he just wants more into the Future fund, can’t blame him, he’s the boss.

  12. Rodger

    Michael James, you miss the point.
    David Murray is unwilling to consider evidence or expert opinion which contradicts his own views in both cases.

  13. TheTruthHurts

    So it turns out that Labors rock solid, Iron Clad, rolled-gold, no if’s or buts, L.A.W, Labor Core Promise of posting at least 1 budget surplus in their time as government is now starting to fall over.

    Today Wayne Swan said a budget surplus was an “objective”. Yesterday Juliar said the Labor drunken sailors are “working towards a budget surplus”.

    1989. That was the last time Labor posted a surplus and they want to take us down the Greek road of spend spend spend to economic ruin.

    Rack it up as another Labor Government failure!

  14. Rodger

    The truth may hurt but not if it is untrue.

  15. ronin8317

    To achieve a surplus, getting rid of negative gearing and the 50% capital tax discount would be a good start. In regard to debt, it is the household debt level ,at 150% of GDP, which must be stablized.

    As to future surplus, Tony Abbott’s current policy doesn’t add up to a surplus either. The carbon tax contains a lot of ‘poison pills’, and repealing it will be hugely expensive. Australia is pretty much doomed to perpetual deficit until we sell the NBN for 100 billion dollars.

  16. TheTruthHurts

    [As to future surplus, Tony Abbott’s current policy doesn’t add up to a surplus either. The carbon tax contains a lot of ‘poison pills’, and repealing it will be hugely expensive. Australia is pretty much doomed to perpetual deficit until we sell the NBN for 100 billion dollars.]

    Howard posted 10 out of 11 budget surpluses.

    Labor despite raising or introducing more than a dozen taxes has never posted a budget surplus and never will.

    We do no need to go down the Greek and U.S path, we need new elections NOW!

  17. Peter Ormonde

    No Truthie knows it hurts… he was bitten by it once as a child I’d reckon … and now he avoids it at every opportunity.

  18. GocomSys

    Predictably BLAKE and TTH as always a waste of space.

  19. Lorry

    TTH – Don’t worry, the duck will waddle his way to a surplus, the j-U-Liar will make sure he does even if they have to add another tax on top of the flood tax, carbon tax and MMRT tax.

    Their politics will make sure there is a surplus – and they will say – look at moi, look at moi, we did it and got a surplus – are we brilliant economic conservatives. The fact that they have crippled the economy in the process has nothing to do with it.

    We sure do need another election now – if only Quentin Bryce was independent and could encourage the liar to “do the right thing” and call an election.

  20. Dan

    TheTruthHurts is not paying attention. The principal reason for the current budget deficits is a massive slump in revenue, i.e. a lower tax take. Conversely, the spending side of the budget is well under control.

  21. Harvey Tarvydas

    Dr Harvey M Tarvydas

    @THETRUTHHURTS you the most — Posted Thursday, 11 August 2011 at 3:33 pm

    “………Howard posted 10 out of 11 budget surpluses……..” (not true by the way)
    My favourite, sweet Johnny Howard, introduces the biggest tax in Australian history since his birth reaping in biblical scores of billions and posts a few threepenny surpluses to keep the masses from getting mad and tying their shoelaces too tight ‘cause he knows they won’t riot even if their sweet poor old mother is strangled by the PM.

  22. fredex

    Ye gods and little fishies, who put this bloke Murray in charge of the Future Fund?
    Get rid of him quick smart, he’s economically incompetent.

  23. Harvey Tarvydas

    Dr Harvey M Tarvydas

    @LORRY — Posted Thursday, 11 August 2011 at 3:45 pm
    Wow, we sure can tell when you are having good sex.

  24. TheTruthHurts

    [“………Howard posted 10 out of 11 budget surpluses……..” (not true by the way)]

    But alas it is true, I know the truth hurts buddy.

    Labor can’t post budget surpluses despite raising a dozen or so taxes, because they are USELESS with money. Especially other peoples money.

    We need to run this useless government out of power and get the Libs back in to fix their mess before we have our own greek debt crisis.

  25. Peter Ormonde


    Given that you are carrying a substantial part of the economy – paying extortionate Labor taxes on all those profits from your share trading – and keeping my mates in subsidised lattes and the like…the answer’s obvious – just go on strike! Bring this illegitimate illegal Gillard government to it’s knees in a week I’d reckon. We will watch with interest.

    Meanwhile: Two double shot caps and a biscotti for the dog thanks.

  26. Suzanne Blake

    @ Peter Ormonde

    I heard that its on its knees almost now. The BAS returns for June quarter (the ones that are in anyway) have sent shock waves through Treasury.

    Watch the SPIN on that.

  27. Peter Ormonde

    Suzanne …

    You must start talking to nicer less frightened people … these characters you associate with will do your head in.

    As for me I’m waiting for a breathless analysis by Alan Kohler of Truthie’s share portfolio (and of course the accompanying explanation of what news has frightened him today). Yep we’ll all be rooned!

  28. michaelwholohan1

    no problem with the ‘climate change’ aside. It illustrates the same lack of Murray’s understanding of the issue…………..Australia ;seems stupidity runs all the way to the top……………..Still all we really do at the moment is dig holes & sell the spoil to the bloke up the road. Not clever work if that is all you plan to do. No matter how big your shovel is.
    To quote Bernard Shaw; ” most people would rather die than think, and they do!’ Thinking is hard work.

  29. Fran Barlow

    Michael James said:

    [Demonising people for their position, even if it’s something you don’t particularly agree with, hardly supports free speech, something Crikey claims to stand for.]

    On the contrary, it’s an example of the exercise of free speech. The right to free speech is not an immunity card from criticism or accountability. Free speech entails the right to be offensive and thus a lack of protection from offence given by others.

    Responsible people should of course have a care to the salience and accuracy of their speech acts, but whether one does or not has nothing to do with one’s view of free speech.

    FTR, Keane’s point was a fair one, as it drew a parallel between Murray’s failure to take settled science no more seriously than economic reason.

  30. steeleye

    As always, TTH, SuzyB and Lorry are sitting at their keyboards with their Alan Jones-inspired list of dot points open in another Window, waiting for the next Crikey article to appear, at which point they all go cut&paste, cut&paste, cut&paste … Post comment. And, hey presto, another thread starts with their trite, content-deficient name-calling (you know, the sort of thing that most of us trained out of our kids in 1st or 2nd grade). Here’s an idea guys: try having an original thought occasionally, before pressing the ‘post comment’ button. You never know, you might, you just might be able to contribute something useful to any discussions.

  31. Suzanne Blake

    @ Steeleye

    We dont get Alan Jones! He is in Sydney.

  32. granorlewis

    Well this time Mr Keane , not even Wayne Swan agrees with you. He still maintains that he believes the budget should return to surplus in 2013 and he has said it many times even this week.

    But what is happening now is that all the dreamers who believe that regardless of anything that happens, the Government should distribute largesse to the citizenry regardless of its ability to generate the money.

    “It can just be borrowed”

    I accept that Wayne Swan’s important fiscal rules are well based, and it is journalists like Keane, and his raft of leftist supporters, who have posted the nonsense already noted, and who would want to see our nation living beyond our means, borrowing to the hilt, and finishing up in the same parlous state now confronting the USA, and Europe.

    Swan at least talks the talk, and one hopes he will stick to his story that we will be in surplus in 2012/2013.

    But I am not going to take any bets.

  33. Jackol

    Truthy, Suzanne Blake et al argue that John Howard’s government had mostly surpluses and the Rudd/Gillard governments have had deficits, therefore John Howard was a good economic manager and Rudd/Gillard/Swan have been poor economic managers.

    That logic ONLY works if you assume that economic conditions have been static over all that time and the only thing to consider is what the government does – Howard got surpluses then, therefore Gillard must be able to have surpluses now, and if she can’t it must be her failing.

    Strangely enough economic conditions change over time and it’s one of the jobs of the government to respond to changing economic conditions to get the best possible outcome for us, the Australian people. Yes, to some extent there is feedback – what the government does can affect local economic conditions – but for the past 4 years the Australian government has had no control over the economic conditions imposed on us by the rest of the world. To argue that 2008-2011 have in ANY way been comparable to 1996-2007 is just simplistic nonsense.

    And the ‘responding to changing economic conditions’ is why most people who have thought about this at all think that the government should abandon any commitment to a token surplus in 2013 – the surplus itself matters not a jot at the moment, but allowing the economy to be buffered against recessionary forces by the automatic stabilizers in the economy is the best thing the government can do – even Warwick Mckibbin has said as much, and he has been no cheerleader for this government – see http://www.abc.net.au/lateline/content/2011/s3288612.htm

    WARWICK MCKIBBIN: Well it reduces revenues and it potentially increases outlays and that means that the budget moves more into deficit, and I think what’s important here is that we don’t stick to this belief that a budget surplus by 2013 is anything other than a political promise.

    The economics of that is, in this crisis, we should let the automatic stabilisers adjust. That means we should let spending go up and we should let taxes go down and we should not prevent that process because it helps to buffer against the major shock.

    People can bluster all they like about ‘debt bad surplus good’, but at the moment Australia’s public debt is LOW by any standard; we are NOT in the same position as Greece or the USA or Italy or Spain or Ireland or the UK or France etc. Incurring modest amounts more public debt at the moment is not a great concern; keeping the economy ticking along is a much more important goal. When the economy picks up again we should return to surplus.

  34. Rodger

    Regarding John Howard’s surpluses; he sold all our assets to get them.

  35. TheTruthHurts

    Hey Suzanne did you hear? Another boats come rolling on in, another 100 apparantly.

    So thats 1/4 of Labors Malaysian Solution quota done and dusted and the policy HASN’T EVEN STARTED.

    But just when you thought this government couldn’t get any more incompetent apparently they have just flown in 13 Burmese Refugee’s from Burma… but wait for it.. the Malaysians say because they were processed before the deal was signed we have to take them but they don’t get to be part of the 1000 quota we take from Malaysia!

    John Cleese couldn’t write this script if he tried, this is the most incompetent bungling government in the history of Federation.

  36. TheTruthHurts

    Oops should read flown in 13 Burmese Refugee’s from Malaysia

  37. Filth Dimension

    hey THETRUTHHURTS you the most, (thanx Doc.)

    try to stay on topic.

  38. Peter Ormonde

    Oops again Truthie…
    it should have actually read … 13 Burmese refugees from Burma…

    and whoops again …
    it should have also read … be part of the 4,000 quota (sic) we take from Malaysia!

    But aside from general lack of grammatical and factual knowledge … what are you actually opposed to… boat people , refugees, flying them in, or just anything the illegitimate illegal thieving Gillard government does about anything?

    And where are those coffees? Sic ‘im Buster!

  39. TheTruthHurts

    [As always, TTH, SuzyB and Lorry are sitting at their keyboards with their Alan Jones-inspired list of dot points open in another Window]

    Actually we use Juliar Gillards dot points on policies they claim they will achieve and then mark whether it was a failure or not:

    * East Timor Solution – Fail
    * Malaysian Solution – Fail
    * Pink Batts – Fail
    * School Halls – Fail
    * Budget Surplus in 2012 – Fail
    * Live Cattle Ban – Fail
    * No Carbon Tax under the Government I lead – Fail
    * NBN Rolled out without cost or time blow outs – Fail

    This whole government is just one big FAIL.

    I don’t know why the hacks even bother defending them anymore. Every time they announce a new policy, the only thing everyone thinks about is how badly they will bungle this one up and how much it’ll cost them. This government just doesn’t know how to implement policies, they just stuff up everything they touch.

  40. TheTruthHurts

    [and whoops again …
    it should have also read … be part of the 4,000 quota (sic) we take from Malaysia!]

    We take 1000 a year for 4 years, so not really.

    Dillards now got a backlog of refugee’s sitting in Malaysia, and she hasn’t even shipped one boatperson out yet.

    Add it to the list of Labor Government bungles.

  41. Filth Dimension

    TheTruthHurts, you are entitled to your opinion. Informed or not.
    However I am not part of your ‘everyone’. FAIL.

  42. steeleye

    Still waiting for some original thoughts, TTH. On topic, slightly more factual and sans the rather puerile (and completely unoriginal) name calling would be a pleasant change too. Could be quite a wait.

  43. Richard Wilson

    Let’s get a few things clear here. David Murray saved the Future Fund back in 2008 by holding cash while every other moron was knee deep in shares. He is more right than most other pundits with the exception of Professor Steve Keen. Now a few things you need to think about:

    1) There are no aliens!
    2) Free lunches are off the menu from here on in despite anything the Red Queen may tell you!
    3) Social Darwinism is on the way whether you like it or not.
    4) There is no anthropogenic global warming (See Professor Salby’s address Sydney Institute)
    5) Central Banks are run for their owners (the global banks) not the countries they represent.
    6) The Government is not your friend and probably isn’t even telling you half the truth.
    7) It (the Government that is), exists to serve its real masters who are not you the people. Its indentured lackeys and media shills serve and reflect only their employer’s interests not yours.
    8) Without TV or any other flickering light medium, human beings would regain their sanity in two generations, refused to be branded as “consumers” or “human capital”, and wake up to the level of manipulation they are subjected to every day.
    9) Industrial food is slowly poisoning you; which has nothing to do with David Murray by the way but you should be aware of it. (See Michael Pollan).
    10) David Murray, Bernard, is the last man standing!

  44. Harvey Tarvydas

    Dr Harvey M Tarvydas

    @THETRUTHHURTS you the most  —  Posted Thursday, 11 August 2011 at 4:03 pm

    You are wrong about surpluses both Lib and Lab.

  45. Harvey Tarvydas

    Dr Harvey M Tarvydas

    CORRECTION needed ………

    @THETRUTHHURTS you the most — Posted Thursday, 11 August 2011 at 3:33 pm

    “………Howard posted 10 out of 11 budget surpluses……..” (not true by the way)
    My favourite, sweet Johnny Howard, introduces the biggest NEW tax in Australian history since his birth reaping in biblical scores of NEW billions OF TAX RECEIPTS and EVENUALLY posts a few threepenny surpluses………..

  46. Lord Barry Bonkton

    Crikey , we need a Troll Cull. I cannot believe they can be sooooo dumb ( TTH , blake and lorry ) Crikey must pay for this comedy act , to get us a laugh. Must be a long weekend at the Nut farm.

  47. jeebus

    If Australian conservatives want a surplus so badly, here’s an easy solution – Let’s bring in temporary tax increases of 5% for people earning between $150k-$250k, and 10% on people earning over $250k.

    And where would I get such an idea? Why, from the ruling media baron and arch conservative of Italy, Silvio Burlusconi, who just enacted those taxes on the rich to help fix Italy’s budget deficit.

    Even Europe’s most conservative politicians know that it is long term economic and social suicide to balance budgets on the backs of the middle class.

  48. Fran Barlow

    Actually Jeebus, Berlusconi’s “solidarity” tax imposes a lot more than 5-10% extra on the top marginal rate. It’s 78% …

  49. jeebus

    @Fran, indeed, the tax systems in many European countries, including the economic powerhouse Germany, are far more progressive than ours. Those higher taxes are invested in training programs and infrastructure that bring more people into the workforce, creating a stronger and more cohesive economy.

    Australia should be looking to adopt the economic policies of countries whose economies and societies have remained solid throughout the GFC – Sweden, Denmark, Norway, Netherlands, and Germany.

    We should steer clear of the low tax, low regulation ethos that has decimated both the economies and social fabric of the USA and UK.

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