The response from Australia’s business commentators to the concession from Treasurer Wayne Swan that a budget surplus is no longer on the cards is pretty clear: "Mr Treasurer, we told you so”. The trouble is that admitting getting out of deficit is harder than they’ve previously acknowledged is only half the story. How are we going to get out of this mess?
Firstly, The Australian Financial Review’s economics editor Alan Mitchell writes, quite simply, that Prime Minister Julia Gillard and Swan made the only decision they could.
"Yes, you can argue, as Joe Hockey does, that the budget should have been in a surplus long before now. But, given the situation in which the government now finds itself, the prime minister had no option but to drop her plan to push the budget into surplus this financial year.”
Of course, we’ve known that this was coming for a long time, explains The Australian’s Judith Sloan.
"One of the earliest warning signs was the failure of the much-vaunted mining tax to raise any revenue from the big miners in the first quarter. The projected revenue of $3 billion for the financial year quickly became $2 billion and is likely to be close to zero. The projected wafer-thin surplus disappeared on the basis of this change alone.”
Somewhat related to this, The Australian’s Barry Fitzgerald says it’s "highly unlikely” that the rapid rebound in the iron ore price will persuade the big miners to ease their plans for the coming year to be capital disciplined and cut costs wherever they can. If iron ore prices hadn’t fallen out, it’s entirely possible that the government could have returned the budget to surplus.
Fairfax’s Malcolm Maiden argues that there might be some room for Gillard and Swan to roll out some additional discretionary expenditure if the economy continues to weaken – perhaps on something like infrastructure.
"What there will not be room for is a blowout in the deficit on the back of politically targeted spending that among other things could undermine or even truncate the stimulus the Reserve Bank is separately delivering to the economy with its program of interest rate cuts.”
Conceding that a budget surplus this financial year is not going to happen is a good thing. But Australians would like a budget surplus sometime in the future, which is something picked up on by The Australian’s economics editor David Uren.
"No one is saying what comes next. For the past year, Swan has been saying that if you cannot run a budget surplus when the economy is growing at its long-term trend rate, you never will. Canberra now has no strategy for returning the budget to surplus beyond the hope that the revenue shortfall proves to be temporary.”
Business Spectator’s Stephen Bartholomeusz is similarly looking forward to what will meet the Treasurer after the next election, whether it’s Swan or the Coalition’s Joe Hockey.
"Whoever wins the next election (hopefully, regardless of the party, with sufficient seats to govern in their own right) will inherit a budget deeply in deficit once the gimmickry of the 2010-11 and 2011-12 budgets is stripped away and a whole series of unfunded but horrendously expensive promises like the National Disability Insurance Scheme or the Gonski education reforms. They’ll also have to deal with the funding of off-budget spending like the $44 billion requirement for the national broadband network or the $10 billion Clean Energy Finance Corporation. There are some deep structural and not particularly visible fiscal issues that might not have been a major concern in a growing economy but will come firmly into the picture as an issue for government as the economy continues to slow.
Sticking with economics for a moment, The Australian’s economics correspondent Adam Creighton puts on a clinic in a recent history of economic theory to explain the underpinnings of, amongst other things, spending on Christmas gifts.
"For all the waste and inefficiency of Christmas giving, it is still a vastly superior way of allocating resources than what occurs in government. The waste is hard to quantify because national income statistics treat a dollar of private spending the same as a dollar of public spending. Government is not something that happens once a year, but every day of every year. It is crucial that politicians and bureaucrats pay particular attention to the inherent value of their expenditures. The Labor government's wasteful spending on school halls in the wake of the GFC – to list just one example – should be a reminder that they still are not.”
Still on budgets, just not in Australia, Fairfax’s Malcolm Maiden writes that the fiscal cliff circus will quickly be put into its proper context next year when the real balance sheet dilemmas in Spain and Japan take centre stage.
Now, other stuff did actually happen yesterday besides the Swan concession.
The Australian’s Mitchell Bingemann argues that the consumer watchdog’s decision to block Telstra’s sale of the Trading Post to Carsales.com.au makes sense at face value, given the would-be acquirer’s market dominance. However, the Trading Post has been steadily declining in Telstra’s hands and there’s no reason why that won’t continue.
And The Australian’s Bryan Frith writes that Sundance Resources shareholders won’t take any comfort from news that the vote on the takeover offer from China’s Hanlong Mining has been set for February 1. The suitor has played around with its target far too much.
THE DISTILLERY: Budget breakdown
Jotters say 'we told you so' to Labor, with one noting MRRT shortfalls were an early warning sign of a budget deficit.
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