The Times Australia
The Times World News

.
The Times Real Estate

.

This budget, amid talk of deficits, consider the lessons we ought to have learned

  • Written by Steven Hail, Adjunct Associate Professor, Torrens University Australia
This budget, amid talk of deficits, consider the lessons we ought to have learned

A decade ago, and years before Treasurer Josh Frydenberg promised a budget that was “back in the black[1]”, Prime Minister Julia Gillard promised the same thing.

At that time, in the lead-up to the 2012 budget, unemployment was higher than it is today, and inflation and wages growth were so low (1.6% and 2.3%, respectively) as to provide no impediment whatsoever to cutting unemployment further.

Yet Gillard was resolute in her determination to bring in a budget surplus, by which she meant a budget that spent less than it took in.

She titled her speech to Western Australia’s Chamber Of Commerce and Industry and Chamber Of Minerals And Energy “In the Black[2]

In the Black, Prime Minister Julia Gillard, April 19 2012.[3] There was “no clearer sign of a strong economy than a surplus”. It would “protect jobs”, provide a “buffer in case the global economy gets worse”, and allow the Reserve Bank to cut rates, “knowing that an interest rate reduction is good for families and business”. Indeed, she added: …let me make this clear once and for all: a budget surplus is not a political target but a potent economic tool. I sometimes wonder whether she remembers this claim. I nearly asked her once, crossing North Terrace in Adelaide, but I chickened out. As with Gillard, so with Abbott Gillard never did get her budget surplus, and she and Kevin Rudd were followed as prime minister by Tony Abbott, who talked of a “budget emergency[4]” that only a run of surpluses could fix. While in opposition, his finance spokesman Barnaby Joyce had gone as far as to suggest that the debt run up by years of budget deficits (spending more than the government took in) was “getting to a point where we can’t repay it[5]”. Read more: Please, no more questions about how to pay off the COVID debt[6] That was too much even for Abbott, who dumped[7] Joyce as finance spokesman a month later. Neither Abbott nor his successors Malcolm Turnbull and Scott Morrison ever did get a surplus, although Morrison came close in 2018-19. The deficits and the way they were financed meant net debt continued to rise and rise. But the government didn’t run out of cash. And when the pandemic struck, borrowing (and having the Reserve Bank create) hundred of billions to support businesses and their employees turned out not to be a problem. So why did Gillard, Abbott, Turnbull, and for a while Morrison and Frydenberg, have their hearts so set on ultimately unachievable surpluses? It might be because they didn’t understand how Australia’s money system works. More charitably, it might be because, while they did understand how Australia’s system works, they found it convenient not to pass that knowledge on. They have been perpetuating the “government as households” metaphor, which ignores the role of the government as a currency issuer as well as a currency user. In cooperation with its wholly owned central bank, Australia’s government produces Australian dollars. It can’t run out of them. Budget money can’t run out The government has good reasons for collecting taxes (to suppress spending that might accelerate inflation) and good reasons for borrowing by issuing bonds (to temporarily withdraw money from the economy). But these don’t include a need to fund its spending. In truth, every dollar the government spends is a new dollar; every dollar it collects in taxes is a dollar destroyed. Every bond it sells does nothing more than change dollars into transferable savings accounts at the Reserve Bank. David Andolfatto[8], an economist who is vice president of the US Federal Reserve Bank of St Louis, puts it this way: …it seems more accurate to view the national debt less as form of debt, and more as a form of money in circulation. What this means is that Gillard was nearly right. She just needed to dump the word “surplus”. The budget is indeed a potent economic tool. Too much spending without offsetting tax will indeed push up inflation. Not enough spending will keep people out of work and risk a recession. But how much spending is needed relative to tax depends on the economy. In 2020 and 2021 a willingness to push out much more money than was taken in supported an economy that would otherwise have crashed, and helped bring about two of the most rapid recoveries from recessions and downturns in history. Horses for courses What budgets should do depends on how things are, and if we haven’t learned this by now, we should have. And what else have we learned? That complex global supply chains can be efficient but not necessarily resilient. Which means a transition away from petrol towards renewables may have benefits beyond the purely environmental. That preventative health, health care and aged care are more important than we might have thought. We have have also learned about the limits[9] to the powers of the Reserve Bank. While governments talked of surpluses, we continued to obsess about central banks using official interest rates to control inflation. When it tried to push up inflation, it couldn’t, until recently. It might be that just as interest rate cuts were not the best way to stimulate inflation before the pandemic, interest rate hikes are not the best way to suppress inflation afterwards. Higher interest rates impose costs on businesses. And they actually increase some incomes, including those of savers and high earners who own products linked to treasury bonds. When high interest rates can suppress inflation, they are likely to do it by triggering a slide in asset prices, including the price of housing assets, which, with household debt high, ought to give policy-makers pause for thought. Taxing more and reining in government spending might do it better. Read more: Memories. In 1961 Labor promised to boost the deficit to fight unemployment. The promise won[10] In any event, withdrawing money from the economy might not be the right thing to do at a time when when high prices are being driven by global events rather than spending at home. There’s a lot we should have learned in the past decade, much of it set out in modern monetary theory[11] – something the budget papers are likely to acknowledge quietly, if at all. References^ back in the black (joshfrydenberg.com.au)^ In the Black (cdn.theconversation.com)^ In the Black, Prime Minister Julia Gillard, April 19 2012. (cdn.theconversation.com)^ budget emergency (www.abc.net.au)^ getting to a point where we can’t repay it (www.abc.net.au)^ Please, no more questions about how to pay off the COVID debt (theconversation.com)^ dumped (www.smh.com.au)^ David Andolfatto (www.stlouisfed.org)^ limits (thenewdaily.com.au)^ Memories. In 1961 Labor promised to boost the deficit to fight unemployment. The promise won (theconversation.com)^ modern monetary theory (theconversation.com)

Read more https://theconversation.com/this-budget-amid-talk-of-deficits-consider-the-lessons-we-ought-to-have-learned-179310

The Times Features

Why You Need an Expert Electrician for Your Business’s Electrical Upgrades and Repairs

When it comes to maintaining and upgrading your business’s electrical systems, it’s essential to call in a professional. Electrical work in any commercial setting requires the ex...

Why Is It Crucial to Have a Building Inspection Done Before Buying a New Home?

Purchasing a new property is a big financial decision that can impact your future for years. Whether you are a first-time buyer or an investor, good or bad, it is essential to en...

Online Application for Sick Leave Certificate: Understanding When and How to Secure One

A sick leave certificate is an official document issued by a healthcare professional to verify an individual's inability to attend work due to illness. It typically includes the ...

A No-Fuss Guide to an Effective Beauty Routine

Taking care of the skin and appearance need not be complicated; it need not even consume your hours of time. Smart and simple approaches can give one that glow and fresh look witho...

Safe & Effective Tattoo Removal in Auckland – What You Need to Know

If you're looking for tattoo removal in Auckland, modern laser technology offers the safest and most effective way to fade or completely remove unwanted ink. Whether it's an outd...

Fleece-Lined Tights vs. Regular Tights: What’s the Difference?

When temperatures drop, choosing the right pair of tights can make a significant difference in comfort, warmth, and durability. Whether you wear tights for fashion, work, or outdoo...

Times Magazine

The Ultimate Guide to Apple Watch Faces & Trending Wallpapers

In today’s digital world, personalization is everything. Your smartwatch isn’t just a timepiece—it’s an extension of your style. Thanks to innovative third-party developers, customizing your Apple Watch has reached new heights with stunning designs...

The Power of Digital Signage in Modern Marketing

In a fast-paced digital world, businesses must find innovative ways to capture consumer attention. Digital signage has emerged as a powerful solution, offering dynamic and engaging content that attracts and retains customers. From retail stores to ...

Why Cloud Computing Is the Future of IT Infrastructure for Enterprises

Globally, cloud computing is changing the way business organizations manage their IT infrastructure. It offers cheap, flexible and scalable solutions. Cloud technologies are applied in organizations to facilitate procedures and optimize operation...

First Nations Writers Festival

The First Nations Writers Festival (FNWF) is back for its highly anticipated 2025 edition, continuing its mission to celebrate the voices, cultures and traditions of First Nations communities through literature, art and storytelling. Set to take ...

Improving Website Performance with a Cloud VPS

Websites represent the new mantra of success. One slow website may make escape for visitors along with income too. Therefore it's an extra offer to businesses seeking better performance with more scalability and, thus represents an added attracti...

Why You Should Choose Digital Printing for Your Next Project

In the rapidly evolving world of print media, digital printing has emerged as a cornerstone technology that revolutionises how businesses and creative professionals produce printed materials. Offering unparalleled flexibility, speed, and quality, d...

LayBy Shopping