Sunday 4 December 2011

Ross Gittins on Business Economics vs Political Economics

Joe Hockey has a great political one liner - "This government never has delivered a surplus Budget and it never will deliver a surplus Budget". Politically it's devastating. However, there are two things wrong with it:
  1. Given the GFC and the fall in Government revenue it's highly unlikely that any Government would have been able to deliver a surplus during Labor's current time in office.
  2. It's also bad for the country because it potentially forces the Government into adopting an economic position (a surplus for 2012/13) for political reasons even it might not make sense economically.
Joe Hockey's line is probably one of the main reasons why the Government has invested so much effort and political capital in bringing the budget back to surplus as quickly as possible. The danger for the Government is that Europe's economic woes might very well make the goal of a surplus next financial year both undesirable and unachievable.

Lately we've been hearing various business economists say that there's really no difference between a tiny surplus and a tiny deficit and if the Government only achieves the latter it's no big deal (and a small amount of stimulus might actually help). However, as Ross Gittins explains in Days that require a line in the sand these economists are missing the political importance of the Government achieving a surplus. He also makes the point that it's probably no bad thing that Governments make commitments that require self discipline for them to be achieved.

Interestingly, virtually the same article by Ross Gittins is published at Economists are playing politics over surplus. However the latter article has a much more political focus.

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