Federal Government of the United States and Cent Growth Essay

Submitted By gimmeessay2
Words: 1352
Pages: 6

“You missed the best news in the budget”
SMH, 16/5/2013
Michael Pascoe
You can be forgiven for missing the best news in the federal budget. The vast majority of the media have and Wayne Swan – a man who would have trouble selling free beer - apparently isn't capable of explaining it. Or maybe he's missed it too.
Oh, you certainly will have read about it, a big figure featuring in all the obvious headlines, but it's highly unlikely you will have seen that the really good and important news from Tuesday night is that we're forecast to have a federal deficit of $18 billion in the new financial year and one of about $19.4 billion this year.
No, seriously, that the government is not trying to peg back the deficit in the 2013-14 should be welcomed by everyone whose first priority isn't doing whatever it takes to change the government.
Simplistic chanting
Having been subjected to abysmally simplistic “deficit bad, surplus good” chanting from both sides of politics over the past couple of years, where the political wedge and counter-wedge have overshadowed the economics, it's perhaps understandable that most commentary has gone along for the ride, suggesting that deficits this year and next year primarily represent budget failure instead of considerable relief.
Attempting to pull back from a $43.4 billion deficit in 2011-12 to nominal surplus this year was absurd. Dumb economics for silly political purposes, Wayne. It represented an unprecedented fiscal contraction that, if allowed to run its course and if not for some Treasury smoke and mirrors pulling forward and pushing back, could have stalled the economy. As it pans out, the $24 billion contraction achieved by trimming the deficit to $19.4 billion is itself without equal – a $24 billion turnaround, a hefty 1.6 per cent of GDP.
It's a moot point whether the deficit reduction efforts of state and federal governments or the strong currency has been the biggest brake on our economy over the past year. The Reserve Bank keeps politely mentioning it as a factor in cutting the cash rate to a record low in an attempt to sustain demand, but the pet shop seems to only have eyes on the currency on that score.
So before any business type whinges about the $19.4 billion deficit or the infamous $17 billion revenue “black hole”, please specify how much slower you would like our economy to be growing this financial year.
Between the lines of Tuesday's budget is an admission that we can afford a deficit more than a surplus in 2013-14 and thus there is no real attempt to rein in the deficit in the immediate delicate period – that's planned for later years when some other treasurer has the job.
Net public demand – governments' collective impact on the economy - is taking half a per cent off GDP growth this year. (It's “only” half a per cent thanks to some fancy footwork by Treasury and what some of the states have been up to.) Allowing a similar federal deficit to roll on in the new financial year means net public demand is forecast as having zero impact on GDP, neither contributing to or subtracting from economic growth.
Because economics is all about measuring the change in the moving goal posts, that's an improvement of 0.5 per cent of GDP from this year, but Treasury still forecasts weaker economic growth of 2.75 per cent while the Reserve Bank is a bit more pessimistic at around 2.5 per cent. (That RBA forecast assumes the cash rate remains at 2.75 per cent – maybe Treasury is quietly betting on the RBA being forced to cut rates further, and therefore stimulating the economy that little quarter-per-cent more.)
Given Treasury's forecast of what else will be happening in the economy in the new financial year, we should be very grateful indeed for the $18 billion deficit. Achieving 2.75 per cent growth is dependent on household consumption growing by 3 per cent, up from 2.5 per cent this year, and our investment in dwellings jumping by 5 per cent compared with a meagre…