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Federal

Dec 21, 2012

Swan alters course, delivers early Christmas present for Joe

Wayne Swan's abandonment of the surplus commitment isn't the opening of the fiscal floodgates, but it's a great gift for Joe Hockey. Perhaps voters will be smarter than either major party on this vexed issue.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Wayne Swan

Yes, Joe, there is a Santa Claus, his name is Wayne and he’s come five days early for you.

Ever since he became shadow Treasurer, Joe Hockey has been saying Labor would never deliver a surplus. Yesterday Wayne Swan came as close to vindicating him as we’re likely to see before the election campaign.

This is a humiliating backdown by Swan. Since the 2010 budget, Swan has been insisting Labor would be back in the black by 2012-13. He’s referred to the surplus around 200 times in 2011 and 2012 alone, the most recent occasion 11 days ago. Sometimes the surplus rhetoric got a little wild. “We’ve nailed our colours to the mast,” Swan said on stage earlier this year. In 2010, Swan insisted the surplus would be achieved “come hell or high water”.

Well, the good ship Budget has now headed for safe harbour just four months into the voyage, though, to be strictly accurate in labouring this metaphor, the problem isn’t so much high water as the doldrums: as finance data to October showed, revenue is falling below forecast levels. While the strong dollar persists, corporate tax revenue will underperform as trade-exposed sectors of the economy struggle. And the flat housing market, not to mention politicians and newspapers insisting that the economy is a disaster, will continue to crimp domestic confidence.

The commitment has an interesting history. The Rudd government first made it in 2010 when the economy looked to be recovering from the financial crisis more quickly than expected, and Labor was spooked by the opposition’s incessant harping on debt and deficits. 2012-13 was safely off in the future and beyond the election at that point anyway, and the first version of the mining tax was expected to reap huge returns. Then came the floods at the start of 2011, and the government’s flood levy, and a chorus of criticism that there was no need to rush back to surplus so quickly.

The government defied that, the economy picked up in the second half of 2011 and the early part of 2012, but the surplus was continually winnowed back as Treasury realised tax revenue wasn’t springing back anywhere near as fast as expected and Labor kept having to bring spending forward or push it back, or cut it altogether, to keep its prospects alive. The slowdown in the second half of this year, which followed a comparative slowdown in China, was the final straw: Labor isn’t going to cut any more.

Still, Swan has reversed course, and Hockey can pick and choose from an extensive list of Swan’s own statements to throw at the Treasurer. As he well should.

The announcement has been attended by quite a bit of stupidity. Tony Abbott suggested Australian families would somehow pay for the departure from the surplus commitment, as if a switch between a $1 billion surplus and a $5 billion deficit is going to have an impact on inflation or, for that matter, interest rates.

“Swan has spent three years preparing the big stick with which Joe Hockey is going to belt him all the way to the election.”

It also sits oddly with Hockey’s lament that the RBA was being asked to do too much work to “catch a falling economy”; indeed, if the Coalition does believe the economy is falling — as Hockey and Abbott’s refusal to commit to a surplus next year suggests — their rhetoric on the need for surplus is bizarre (then again, all they need do is point to Swan’s many statement about why it’s economically necessary to return to surplus).

The opposition also continues to claim the government is “spending like drunken sailors” when its spending-to-GDP ratio this year — 23.8% at MYEFO, currently on track to be a tad lower — is lower than the average spending-to-GDP ratio of the Howard government.

Then there was the opposite reaction, by Rob Oakeshott, the Greens, some press gallery journalists, and various barrow-pushers, that having walked away from the surplus commitment, the government could now unleash the floodgates on spending, restoring savings made during the course of the last two years. One notable exception was ACOSS, which said the government should look to fund NDIS, Gonski and increased health spending by “clear[ing] wasteful and poorly targeted expenditure from the budget, and to avoid introducing new programs that are not rigorously designed to meet the country’s essential economic and social needs”.

The spend-up-big types — who in effect are saying “we’re going to have lower income this year, so let’s spend more” — missed or ignored what Swan specifically said, which was that the government was not going to make any further cuts to make up for the failure of revenue to meet projections; the surplus commitment has been abandoned only as far as tax revenue falls short. Nor is there strong evidence of a need for any fiscal stimulus. Unemployment remains low and steady; commodity prices have picked up significantly in recent weeks, buoyed by China’s return to strong growth, and there’s still plenty of stimulus to come from the RBA’s interest rate cuts, so a stronger second half of the financial year is a distinct possibility (with attendant higher tax revenues).

In fact Swan has steered a sensible fiscal course so far, refusing until now to react to the constant claims that the economy is in trouble and being endangered by a rapid fiscal contraction. In the end, the bulletproof dollar has defeated him, but there’s no case for abandoning fiscal discipline.

Still, regardless of the merits of the decision, Swan has spent three years preparing the big stick with which Joe Hockey is going to belt him all the way to the election. Whether that has any political impact remains to be seen. At the end of October, Essential found more voters opposed returning to surplus on the back of further spending cuts than supported it. Maybe voters are more sensible and realistic on budget policy than either Labor or the Liberals.

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95 thoughts on “Swan alters course, delivers early Christmas present for Joe

  1. GeeWizz

    First it was going to be a $3 Billion Dollar Surplus.

    Then a $1.5 Billion Dollar Surplus

    Then a $1.1 Billion Dollar Surplus.

    Then 4 months into the data Labor gives up and says it’s all just too hard.

    Now we are gonna get a $10+ Billion Dollar deficit. But it’s okay says Swanny, it’s not my fault.. how was I to know things wouldn’t go exactly to Plan A’s specifications, this running an economy thingy is kinda hard.

    Hey we’ve given up on stopping the boats, given up to the Greens blackmail on the carbon tax and now we are giving up on a budget surplus.

    But don’t worry folks… Labor can have another shot at that elusive Labor budget surplus… in another 23 Years.

  2. floorer

    Maybe voters opposed a return to surplus because they know how bad the economy is despite the *stats* saying otherwise.

  3. Apollo

    No need to worry about the surplus because the world is going to end today.

    But if we survive, we might get unexpected strong revenue for December. I went into Melbourne the other day and saw businesses were buzzing, property sales looked good too. Maybe it’s because we’re close to Christmas.

  4. WTF

    Only Swan was saying he can do it, anyone with half a brain realised a long time ago that every sentence leaving the man’s lips is rubbish. In any case – surely if it can’t be pinned on Abbott than the bigger the deficit the better it must be for working families. That is how incompetence works!

  5. Apollo

    Australian businesses might be able to bring the Australian dollar down against the USD. Maybe if they divest 70% of their export returns into other currencies to convert back to AUD when it’s profitable, and 30% USD to AUD. I’m guessing, I don’t know a lot about currency tradings.

  6. GeeWizz

    JOURNALIST: If you don’t make a, get the Budget back in to surplus in 2012-2013, this is a question to both of you, the cameras are on – will you resign?

    PM: (laughs) The Budget is coming back to surplus, no ifs no buts it will happen.

    JOURNALIST: So that’s a ‘yes’?

    PM: Matthew, I know and you know like these questions during campaigns but the Budget’s coming back to surplus. There’s no credible analysis on our economic plan that it won’t come back to surplus.

  7. Paul Barry

    Good decision. No need to weaken the economy now. Should the economy becomes robust enough in the second half, they can cut spending in the final quarter if it looks achievable.

  8. Hunt Ian

    GeeWizz is all full of it – as a person who has never thought it especially necessary to get the budget back to surplus this year, nor even that it has to be in balance over the cycle, I am not dismayed by Swan’s refusal to shove the economy into recession.

    Unfortunately, we cannot say that “austerity” Abbott and Joe will refuse to push the economy into recession. In fact, it is guaranteed that they will, while trying to cook up a monstrous shortfall in the books with a repeat of the Costello audit of Queensland and blame Labor for the recession they will say we will to have because Labor “spent like drunken sailors”. They will no doubt be assisted by MSM, especially the “small government” push that Murdoch employs. Unfortunately again, many Australians seem a bit as thick as Abbott and Joe think them to be. So sending the economy into recession (Tony has been learning all about it in the UK) and dismantling the welfare state will be order of the day, along with attempts to resurrect the worst elements of Work Choices around individual agreements and withdrawal of rights of access, with the help of Consevative state governments.

    Joe has already signalled how to dismantle the welfare state. There must be incentives for families to spend themslves on tyheir health care and these incentives should be universal. Everyone, rich and poor, should have an incentive to take out private health insurance for health care,. In the case of the poor, the incentives will include cutting all levels of publicly funded care to a bare minimum and waiting in very long queues for elective procedures. In education, everyone, whether rich or poor, should have an incentive to contribute to their own children’s education, provided by bigger grants to schools that don’t get state funding and cutting back on extra federal funding for public schools so that poorer parents have an incentive to contribute more through school fees. The higher the school fees, the less will federal funding of public schools be cut back.
    We unfortunately can expect that deception and all the Goebbels techniques that some parts of MSM already seem to have adopted from Fox News, even if not so thoroughly, will play a big part in this. GeeWizz, can we suggest that you have a little celebration over Xmas? it will be on the house.

  9. مكينSultanofAustralisTerraNullius

    ooooo, that swanie is such a c()ck teaser. first he flirted with the Ozis on the surplus, now he teases blowjoe’s weener. he may do bullwinkle to surprise us all.

  10. Bill Hilliger

    @ Geewizz: Wayne Swan is a fool, he should have done what Joe Hockey will do if he gets to control the fiscal levers, that is; sell Medibank Private, and any of the few remaining government assets after the Howard/Costello sell offs to bring about a surplus. He should have cut Health, Education, free financial gifts to private school, sell off public schools, delete child care assistance, increase taxes for people earning between $50-250K. That would have brought a surplus. But wait that’s not all! Cut taxes for people earning more than $250K as they are the job creators; you know a’ la’ the Fux News and Republican Tea Party mantra that would be so familiar to you. Lastly make the Hume, Newell, Pacific and New England highways toll roads, or better still sell them too. Lastly cut old age pensions by at least 20% and stop subsidising incontince pads for people over 75. There would be a massive surplus, and the spending like drunken sailors transferred to the Australian people. THAT’S what we want, and thats what we will get if Joe gets in. Can’t wait for the wailing to start. Oh how, (according to the polls the MSM, it seems like many fellow Australian people) I hate an even a slightly caring for the people government.

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