Macquarie's otherwise dovish economists think that the Government's announced spending cuts today will have no real impact on the RBA's monetary policy decisions:
"The release of the Government's Mid-year Economic and Fiscal Outlook (MYEFO) contained a number of savings measures that are designed to ensure that the Budget returns to surplus in 2012-13. In our view, however, the size of the announced spending cuts provide no guarantee that there will be a surplus next financial year. Hence, if the Government is to retain its rhetoric about a budget surplus in 2012-13, then we believe that further spending cuts will be necessary in the May 2012 Budget.
Moreover, the type of spending cuts are consistent with the Government's previous modus operandi of cutting previously announced -- but not enacted -- spending programmes, changing the timing of spending, as well as boosting the "efficiency dividend" for government departments, which is now becoming the Magic Pudding for Treasurers who are looking for spending cuts that won't hurt anyone.
Clearly, this does mean that there will be less money flowing through the economy than if the Government proceeded with those programmes that have been trimmed. But unlike a significant cut in, say Family Tax Benefit payments, these decisions will not change the behaviour of consumers. And of course, it makes absolutely no difference whether the compensation paid to households for the introduction of the carbon tax is delivered in June 2012 -- and so worsens the 2011-12 budget deficit -- or July 2012 which would worsen the 2012-13 budget outcome. In short, this is not a substantial structural tightening of fiscal policy. As a result, it is unlikely to play a major role in the RBA's interest rate deliberations in December."
