ICAP's Adam Carr never pulls his punches, and, as you would expect, this the most direct of all the economists to date:
"Well the budget was talked up as being tough but in reality didn’t deliver, it wasn’t even close, and it gets the big thumbs down from this humble economist. This was a drab budget, there is no way around that and they played it very safe – politically speaking – so as not to offend their support base further and undermine whatever residual goodwill they’ve got left. In the process, they are trying to fan old ‘class-war’ style resentments which shows the depths to which they have fallen, although Labor’s definition of rich is interesting (families on combined income of $150k). One positive I guess is that there wasn’t any blatant broad-based attempt at vote buying – but the election is still some way off yet, so that that will come and I suspect the surplus will evaporate in the process. Now considering the challenges facing the economy, considering what we need to do to improve the lot of our citizenry as a whole, this was a wasted opportunity.
As always, a budget shouldn’t be judged only on what was done, but it should be judged on what wasn’t. Just as an example the budget made a great deal of saving $22bn – the problem of course being that they are spending the bulk of that - $19bn. So in reality it’s not that these are savings as such, the government has merely re-directed spending and redistributed wealth. I’m sure there are some people who will be unhappy with the cuts that were made and some of the measures were truly gobsmackingly stupid - effectively anti-family (restricting family payments), harmful to the health industry (cancelling the private health rebate for some) and ultimately inflationary (education). That said and looking at the budgetary impact on the economy as a whole, the talk was just that – as you’d expect from a weak and unpopular government. In the end there is no vision from this budget and it makes only a small contribution to managing or dealing with the challenges posed by the terms of trade boom (by lifting the skilled migrants intake - a key positive).
Indeed relative to the MYEFO in November, this budget is stimulatory – approximately +0.5% more stimulus when measuring the change in the fiscal balances between now and what was proposed in November. Indeed if you prefer cash accounting to accrual, then additional government expenditures add about one-third of a % more to GDP in 2011-12 than at MYEFO.
With that in mind, and while noting that the overall fiscal stance is contractionary (-1.9%), today’s budget certainly adds some pressure for the RBA to hike given that it is less contractionary than what we had (-2.3%) – less contractionary than what the RBA would have assumed, which means more work for them. I’m sure that’s how the government want it though – a weak and unpopular government can’t afford to take any blame for policy tightening.
The two tables below give an overview of how the government’s fiscal position has changed over the last year – in essence not much except in fiscal year 2011-12 where the deficit has almost doubled. So the fiscal balance in 2010-11 is up only about $4bn compared to the November estimate (at $45.7bn), which is lower than expected, but the 2011-12 fiscal deficit is much higher at $20.3bn compared to my expectation for $15bn and a forecast of $10.9bn in November last year. In 2012-13 the fiscal balance is little changed at a $4bn surplus. The underlying cash balance isn’t really that much changed either as you can see, except, again, perhaps in 2011-12 where it has almost doubled."
