LDP Budget 2014 in the Australian Financial Review.November 12, 2014
The Coalition government will release its first budget on Tuesday which will set the tone for the rest of the time in office. There is speculation that the government will make some difficult decisions to get the budget back on track. I hope those predictions are correct, but I fear they will be wrong.
The commission of audit was a good start, but it didn’t go far enough in cutting back on government over-spending. Unfortunately, the government is probably going to water down the recommendations even further, announcing yet another budget deficit and (like Labor) making vague promises about a surplus somewhere in the future.
The budget should be in surplus in 2014-15 and that is what the Liberal Democrats’ proposed budget would achieve. Anything less should be considered failure. It is easy (and accurate) to blame our current budget problems on the waste of the previous government, but that does not mean the new government should shirk its responsibility.
The first budget of a new government speaks volumes about whether it is serious, and if the Liberal/National government does not make the tough decisions now, they never will.
It has become politically fashionable to deny that Australia is facing a budget problem. Opponents of reform correctly point out that Australia has less debt than the collapsing economies of Europe and America, and conclude that there is nothing to worry about. While it is true that Australia’s debt to GDP ratio is still relatively low by international standards, the economic denialists are neglecting three important points.
First, debt is increasing far too quickly. It is noticeable that advocates for big government are only Keynesians on the way down (when recession equals budget deficit) but they refuse to follow their own rules and advocate a budget surplus when growth rates have recovered. Economic growth has followed long term trend for the last few years so by any standard (Keynesian, Classical, Austrian) we should not now have a budget deficit.
Second, the reason that countries fall into a debt crisis is because they did not take early action to combat rising debt. We are in the position now that many European countries were in a decade ago, and we need to decide whether we want to follow them into crisis or fix the problem. It does not take courage to bury your head in the sand and allow a budget crisis to slowly build.
Third, even if the current debt and deficit was acceptable, the ageing population presents a real and serious danger to the Australian federal budget as the share of wage-earning taxpayers falls while the cost of health and pensions skyrockets. This is a long-term problem that must be addressed. The only options are to make some difficult reforms today, or leave the problems to the next generation when it will be even harder to fix.