Recessions and global economic funk are bad news for Australia’s budget position. Over the past four decades or so, each time Australia has been hit with a global slump or a domestic recession, there has been a budget deficit for either five, six or seven years.
The current figuring has Australia in budget deficit for seven years, if Treasury is right this time and there is a return to budget surplus in 2015-16.
From a purely accounting perspective and according to the latest Treasury figuring, the fiscal impact of the global banking and economic crisis on Australia will be budget deficits each and every year from 2008-09 to 2014-15.
If we hark back to the fiscal position in the aftermath of the early 1990s recession, the budget went from healthy surpluses of 1.5 per cent of GDP before the recession hit to deficits for seven consecutive years – from 1990-91 to 1996-97. A recovery in tax receipts, rather than spending cuts, drove the improvement in the budget bottom line.
Looking further back, to the early 1980s recession, there were just five years of budget deficits from 1982-83 until 1986-87, before the Hawke government delivered record cuts in government spending to return the budget to surplus.
In the late 1970s period of economic malaise and policy intransigence, the budget was in deficit for six years until the mini-mining boom help get the budget back into surplus in 1981-82 through both lower spending and an increase in government revenue.
This just goes to show that deficits are never one-offs. In Australia’s recent economic history, they are never short-term. And this does not seem to have any lasting negative impact on the performance of the economy and goes to confirm the bi-partisan approach to budget management of having a small surplus, on average, over the course of the economic cycle.
This is just to say that the current period of seven years of deficit budgets is around the norm – no much more, not much less. Had the government be able to engineer a surplus in 2012-13, it would have achieved a record turnaround of just four years in moving from surplus to deficit and back to surplus again.
Alas, the shortfall in tax receipts, a series of spending decisions on policy priorities such as DisabilityCare, education and infrastructure spending in road and rail have pushed this out to seven years.
This seven-year timeframe is unlikely to have a material impact on the structure of the economy, the sustainability of the current growth cycle, or the triple-A credit rating, which is a reminder of how well fiscal policy has been handled over many decades.
Stephen Koukoulas was senior economic policy advisor to Prime Minister Julia Gillard between September 2010 and July 2011.