HSBC's rising star, chief economist Paul Bloxham, has been merciless in his assessment of the Government's fiscal stance. Or, for those who prefer a little alliteration, Blocko has brutalised a bloated budget:
"Claims that the budget will hold down inflation are just rhetoric, as expected. The deficit for 2011/12 was a bit larger than expected at 1.5% of GDP (markets had 1.1%), implying less contraction, inflation was forecast to be above the RBA’s target mid-point and wages forecast to rise to 4.25% in 2012/13. On these assumptions the Treasurer must also be expecting higher rates. Supply-side programs to increase available skilled labour are to be applauded, but the broader issue of why a strong economy does not get back to fiscal surplus sooner remains. We still expect the RBA to hike by 100bps by mid-2012...
As we pointed out prior to the budget (Australian Budget Observer, 9 May 2011), in many ways, issues that were not dealt with in the budget are more interesting than some of the issues that were.
First, no estimates of the impact of the carbon tax, due to be introduced in July 2012, were included in the budget. This will make a fundamental difference to all of the published numbers.
Second, while there is significant information in the budget on why revenues are weaker than expected, there is no discussion about tax policies that may help remedy this issue. It remains a fundamental question why an economy with nominal GDP growth of almost 10%, in the throes of the largest terms of trade boom in over 140 years, with full employment is still struggling to get its fiscal accounts back to balance. With the economy’s structure shifting such that the mining and associated industries are a larger share of the economy, the composition of the tax base is a key issue. And not an issue addressed today.
As the Treasurer is fond of saying, Australia currently has a ‘patchwork economy’. In many ways, the missing issues in the budget make this budget seem like a patchwork budget."
