To deficit or not deficit – is that a question?

In the turmoil of the GFC – countries around the world have gone into recession, and so far, Australia is not one of them. We cannot deny that the economy left by the former government was in a better state than a lot of others – with a large surplus. We can (and probably will) quibble about how the surpluses came about – whether it was through increased tax intake due to the resource boom, through a lack of investment in large infrastructure programs etc. etc.

But we are where we are, and applying hindsight will not be of much benefit to the future.

The question we really need to be asking is: is it OK to go into deficit to ward off recession?

Turnbull in a terrible interview on the 730 Report last week said this when asked a number of times by Kerry regarding when it is OK to go into deficit, because Turnbull has been on and on about the “last resort”:

And a last resort means that you shouldn’t go into deficit unless, without going into deficit, you would cause – you would fail to prevent serious economic harm in the economy.

So does that mean that the coalition would support a deficit? 

I actually think that the voters are much smarter than the politicians give credit for, that they will be forgiving of a deficit in these tumultuous times. What do you think, blogocrats?

joni

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18 Responses

  1. I’m in two minds on this topic…firstly I would have held back my monopoly money to ensure I could get out of jail quicker if I landed on that spot so I could do a few more circuits of the board that would have earned me $200 on each occasion rather than spend the bank balance on propping up the people that bought Mayfair who in reality could not afford it.

    I would have invested more in the utilities and although they are not the prime assets on the board they generate a steady income and are a much better investment than buying hotels.

    The problem I see is there is too much investment on the board at once which draws down the funds of the reserve to keep the circuit or should I say circus revolving especially when the players pay the penalty for landing on each other’s hotels.

    To go into deficit for no future return is a very dangerous ploy.

  2. 100,000 hits. Top job, Joni.

  3. Spot on Scaper.

  4. scaper and Carlyle, does that mean that you would go into deficit to play with the Utilities?

  5. I think a budget surplus on average is important. However, I believe a deficit is completely acceptable during an economic downturn, provided that the extra spending is useful and prudent.

  6. TB, I’ve seen enough of our money get pissed against the wall in my life for no benefit in the future…kind of like spending the inheritance to ensure no positive outcome for the progeny.

    As a businessman, to go into debt for no long term benefit is a recipe for failure and opposed to that, sticking the money in the bank (future fund) and not utilising it to attain an optimum return is also remiss.

    Risk and return are two words that come to mind.

  7. And I should add that I believe a considerable portion of any deficit spending should be on long-term viable projects

  8. “I actually think that the voters are much smarter than the politicians give credit for, that they will be forgiving of a deficit in these tumultuous times. What do you think, blogocrats?”
    joni

    I concur.

  9. Deficit? I am sure we are already there for two reasons. First, the expenditure is way above the Budget Estimates. Second, the estimated revenues will fall short by a considerable margin.

    Certainly the previous government had the best of times and therefore deficits were neither desirable nor necessary. Those times have gone. The Government should ‘invest’ as it sees fit. There is nothing ‘sinful’ about a deficit if it is cause by sensible spending.

    While I am not holding the US up as a role model, currently its deficit is in the order o 8% of GDP. We have some way to go. Beside every economist in the land is advocating deficit spending.

  10. I don’t have a problem with deficits as such. I have a bit of a feeling that all of the budget space and all of the interest rate space is being used up too quickly when psychologically the people are not yet ready to recommence spending. Hell, we are still in a state of shock at our super balances. It sounds harsh, but I get the feeling that there is too much of a rush to spare the electorate from pain, and the pain will be worse in the long run. I think some pain is necessary if the lessons are to be learned from this debacle. From my personal professional perspective, people need to learn that worthwhile advice is something worth paying for, and that higher interest rates from ACR bring with them higher risk.

  11. Good point James.

  12. 10. James of North Melbourne

    Agree, James, its going to get much worse before it gets better.

    In the words of a well known monarch next year will be an “…annus horribilus…” for many people and if the coffers are bare……………………………?

    Spare a thought for the many self funded retirees who are in a lot of trouble – too old for anyone to give a job (especially when times get tough) but too young for any pension support…and lost a bundle of capital…

    …and before any of you young upstarts say anything – my generation paid much higher taxes in the belief that we were funding our pensions…

  13. Just a quick’un as I have to have dinner on the table. The only reason that the previous government were in surplus is because they didn’t invest in the future but socked it away like squirrels hoarding nuts and seeds for winter. The Lib’s winter being the next election.

    IMAGINE what the the Libs could-have-done with all that money but instead chose not to.

    And what is this surplus anyway? For example run hospitals down to the ground reducing funding from 35% to a bit over 30% I believe. Oh whoopy-do..we have a…wait for it..a surplus. Due to not spending it.

    It’s a bit like coming home and being expected to eat budget mince every night and the partner says. See…We’re in Surplus!

  14. I don’t mind dipping into the “community chest” if we need to for the sake of keeping the economy going.

    Let’s face it. The Libs would’ve opted for “lucky chance” instead.

  15. And the friend of poor people everywhere, Gerry Harvey, has just announced that sales at his wonderful stores are up 4.5%.

    So it seems that the stimulus package is working.

  16. “higher taxes in the belief that we were funding our pensions”

    True! But very dumb. Clearly no understanding of how government works!

  17. 16. Nature 5

    I agree N5, guess who I trusted to fund our retirement!

    …the point was (is) that the governments of the day should have created a super fund for ordinary folk as well as the “hangers on” in government – expecting people to live in retirement gambling on the stock market (and that includes future generations) is also very dumb…read any newspaper today…

    …BTW, “Clearly no understanding of how government works!” Why? It wasn’t my plan – I just paid what I was legally required to…just like you…its these off the cuff remarks that I often object to N5…

    …back then I also disagreed with the governments of the day going to war in Vietnam…also very dumb…it didn’t stop me having to do NS for two years…I can assure I have a very clear understanding of how government works…it was this same Federal Government we took to the Appeals Tribunal and won compensation for my son…after 12 months…another injured digger they initially refused to compensate after a parachute accident…oh, yes, I know how governments work alright!

  18. Sorry TB, just noticed your post.

    My comment:

    “True! But very dumb. Clearly no understanding of how government works”

    Wasn’t directed at you but at the population at large. A glance at the Budget Papers would see that there never was a long=term allocation for pensions. There never was and there still isn’t a seperate ‘fund’ for pensions. They are simply part of ‘recurrent’ expenditure.

    But then again how many people read Budget Papers, and if they did how many would understand same, given that governments go out of their way to ‘restructure’ the way accounts are presented to prevent year on year comparison.

    ” governments of the day should have created a super fund for ordinary folk”

    Perhaps. And if they did, how should they have invested same? If they keep it all in ‘cash’, inflation will rapidly erode its value. Have you looked at the ‘cash’ returns of super? Not doing really well at the moment. But then nothing else is either over the long term.

    Governments ‘look after’ their employees (and that includes their members) as they should. Keating advanced compulsory super and that was a good thing!

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