Next year’s budget offers the Government a horrible array of choices.
The government was badly burned by this year’s budget. Ideas like the GP co-payment saw their popularity plunge in May, and they’ve been in an election-losing position since.
They burned their fingers badly, and what’s worse, didn’t even grab substantial fiscal gain from it. The Treasurer’s office is staring down the barrel of a budget with another big deficit next year.
If they try to push the budget back to surplus, the public will have their worst fears confirmed – these guys really are mean!
So the Treasurer can’t cut too hard.
The alternative – running a deficit and being proud of it – looks unpalatable. But there are ways to change one’s tastes …
Australia’s growth in the last quarter was poor, falling to 0.3 per cent.
There is a big school of thought in economics that says when growth is poor, governments should spend to prop it up. This is broadly known as Keynesianism, named for John Maynard Keynes, who was a major theorist of the great depression. The more contemporary theorists are known as New Keynesians
Spending to support growth is common. That’s what Kevin Rudd and Wayne Swan did in the GFC, giving us school halls, insulation and $900 cheques. The Rudd stimulus left Australia with a medium-sized amount of debt, and arguably prevented Australia from falling into recession alongside the rest of the western world.
But by 2015, might their rigidities soften? The political needs of the current government may demand it. The only way to not commit political hara-kiri while setting a framework for the 2015-16 Budget will be to adopt a far more generous way of thinking.
Torn between two forms of cognitive dissonance, “I am setting the national Budget in a wholly political way” and “I am a late convert to the need to support aggregate demand,” I suspect Mr Hockey may be tempted by the latter.
This summer, as he lies on his towel, listening to the Pacific Ocean waves crash on the beach, Joe Hockey may well be turning the pages on a biography of Keynes. Perhaps the same one Mr Rudd read in 2009. It might be the thing that saves him.