With politics degenerating into show business and Treasury playing the role of The Dresser, it is up to the Reserve Bank to conduct macroeconomic policy alone.
Today’s early Mid Year Economic and Fiscal Outlook statement will probably ensure that the RBA cuts rates again in November, trying to offset the abandonment of fiscal policy and automatic stabilisers.
Tax revenue is deteriorating because, as predicted everywhere but in Canberra, profits and capital gains are falling short of budget forecasts. Instead of letting spending rise to automatically offset it, spending will be cut to preserve the all-important surplus.
It’s not austerity on the scale of Greece or America’s fiscal cliff: after all, we’re talking fractions of one per cent of GDP. But Australia has got itself into a bit of a bind.
As the terms of trade boomed with China’s growth up to 2010, the budget surpluses were spent on welfare and tax cuts, not infrastructure. What was left was put into liquid securities via the Future Fund.
Now with a hysterical hung Parliament there is neither political nor fiscal capital available for the Treasurer to run a deficit. It probably means there will have to be an election before the May budget next year because it’s hard to see how that can show a surplus for the 2013-14 year.
With this morning’s polls giving Labor a sniff, they won’t want to give any quarter to the Coalition by revealing the inevitable deficit in a pre-election budget.
In the background, economic bureaucrats are no doubt quietly tearing their hair out, while business groups are doing it more loudly. Over the weekend Business Council of Australia President Tony Shepherd called for a deficit, saying: "The Business Council has been one of the strongest supporters for the goal of achieving a surplus in 2012-13, but we always said this should not be at any cost and should be able to be revisited if economic conditions deteriorated.”
Meanwhile the Coalition is sticking with the airy, dubious proposition that its surplus would be better than Labor’s. Leader Tony Abbott appears to be suggesting that he wouldn’t spend $5 billion on border protection that Labor is budgeting and that pausing the National Broadband Network will also save money.
Presumably he means that a Coalition Government would save that money by towing boats back to Indonesia rather than putting the passengers up on Nauru and Manus Island, but the Indonesians might have a say about that.
And as for the NBN, it’s mostly off-budget and, anyway, the Communications spokesman Malcolm Turnbull has been saying he would speed it up, not pause it.
But anyway, this is show business -- and there’s no business like show business, is there?
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