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Swan’s lazy 2011 budget and Australian economic madness.

May 16th, 2011 · Greg Atkinson · 6 Comments

On budget night Wayne Swan could have saved us all a lot of time by simply standing up and saying that his plan for the Australian economy was to simply sit back and hope the mining boom continued. As I have said for over a year now, Australian policy makers have set the economy up for a severe downturn if commodities prices slump and there is no Plan B.

Some media economists thought Swan’s 2011 Budget was a fairly good one – of course they would, the view of the world is quite different when you have a safe media job behind a desk in Sydney or Melbourne.

But Swan’s budget has done nothing to tackle tax reform or prepare the Australian economy for a world where commodities prices are lower and the Chinese economy is no longer growing at nearly 10% per annum. Maybe a downturn in the commodities cycle will be short, say just six months or a year, but it could also drag on for two or more years and due to the economic madness that has gripped Australia, there is no Plan B.

The Australian Taxation Review headed up by Ken Henry appears to be gathering dust just as I said it would before it was even released. Most in the financial media have of course forgotten about this report although at the time they ranted on about what a wonderful idea it was and how it showed what a visionary Kevin Rudd was.

In economic terms Rudd was about as visionary as a shopkeeper handing out free lollies and now Julia Gillard is showing us that she has even less economic vision than Rudd.

Gillard’s grand economic plan is to rush in a carbon tax, tax the mining companies more, run up debt and hope it all works out okay. Be afraid, be very afraid.

Of course the constant factor over the last few years has been Wayne ‘Swanny’ Swan. He fought the hard battle against inflation because the former Treasurer left him a budget surplus and booming economy. He then decided to borrow and try to spend Australia’s way out of the Global Financial Crisis. (although I suspect that was Rudd’s idea to help him fit in better at the G20 meetings)

Luckily China came along and pumped hundreds of billions into their economy which propped up the demand for commodities and thus the Australian economy held up well..for a while at least.

But today inflation is once again a challenge for the Reserve Bank, the Australian stock market is still at recession-like levels and government debt is reaching record levels.

How a Federal Treasurer can take a mining boom and turn that into record government debt is beyond me…well actually not, the secret to Swan’s ‘success’ is he likes to spend. From the National Broadband Network to set-top TV tuners, Swanny has money for everything.

I would have thought the millions of dollars wasted on pink batts, school halls that were not needed, iPod docking stations and handout cheques would have perhaps convinced Swan that he should try and be a little more prudent with taxpayers money.

But alas Swanny is not easily pushed off the path to hand over to the Australian people a debt burden that they will be paying off for years. The scheme for example to install digital TV tuners into the homes of pensioners is simply madness. I doubt that digital TV would top the list of what pensioners need the most so it appears that the Government is now wasting money on things that don’t even come close to what the public needs.

To be fair, Treasurer’s basically have to work with the economic cards they are dealt. Peter Costello was in many ways lucky to be in office at a time when tax receipts allowed him to pay down debt, build up a surplus and hand out dollars to a lot of people who didn’t really need government support.

But with his latest budget, Swan has done little more than to set out a plan that relies on the continued above average economic expansion in China holding up until at least 2013. Actually to pay off government debt, Australia will need commodities prices to stay high for another decade or more.

Last year when I commented about the 2010 budget I stated the following:

“The Government also helped keep the GDP numbers in positive territory by blowing the billions they inherited from the previous Government and then by borrowing and spending billions themselves. So it appears that the people managing the Australian economy reckon the way you deal with a debt crisis is by getting into more debt.

Now this may not be such a bad approach if the money that is spent will help the nation be more productive in the future. But as the media has finally realised and as I wrote about more than year ago, the economic stimulus spend-a-thon in the lucky country has been a colossal waste of money. In 10 years time we won’t be getting any productivity gains from outdoor covered learning areas or imported sub-standard roofing insulation.”

(See: The two speed economy, debt and the fantasyland federal budget.)

My view over the last year has not changed much except that I would add that in 10 years time not only will the general public have realised how much money has been wasted, but taxpayers will also dealing with paying off the mountain of debt that Rudd, Gillard and Swan have created.

Will productivity in Australia be improved because of this years budget? No. Will the Australian manufacturing sector be made more competitive because of this years budget? No. Will Wayne Swan’s 2011 budget help position the Australian economy to be able to better withstand the next economic downturn? No.

Maybe Swan’s China gamble will pay off. Perhaps the Chinese will keep building apartments eventhough millions are already empty.  Maybe commodities prices will stay high and maybe government spending can be kept under control.

If so, then Wayne Swan can proudly boast about his achievements during his budget speech in 2013. However it is more likely that Swan will be watching the budget speech at that time from the Opposition bench and will be focused on trying to duck for cover everytime his days of reckless spending are mentioned.

6 responses so far ↓

  • 1 AU Stocks // May 16, 2011 at 6:22 pm

    Agreed – what exactly can we thank Wayne and Julia for?

  • 2 Greg Atkinson // May 17, 2011 at 9:54 am

    Not a lot AU. I think the carbon tax is turning out to be a debacle to rival the NBN. It’s just hanging out there at the moment and is sapping the confidence of investors. It’s hard to find a reason to be bullish about Austrlaian stocks at the moment that’s for sure.

  • 3 Ross T // May 22, 2011 at 7:31 pm

    Colin Barnett just shot poor old swanny’s 2013 surplus (I think it was only a lazy billion anyway) out the water with his iron ore levy (amazing how upset julia got over someone else’s LEVY), now all she can come up with is sour grapes. Now we will see if swanny and wong know how to cut their expenditure from their “drunken sailor” 5.8% above CPI rate.
    Cant really see why they are so upset when you consider the 50 billion of ALP “canberra stimulus” they just borrowed – 2 billion is nothing! All this will ensure is that no future canberra govt will get into a surplus generating situation any time soon, after all whats the point when political opportunists like these are waiting to spend it all!

  • 4 Greg Atkinson // Oct 12, 2011 at 9:25 pm

    Here we go. Wayne swan has finally woken up to the global economic reality…6 months late: Wayne Swan warns Australia could face a repeat of the GFC

    Standby for Swanny’s budget to fall into a heap and for him to pull out the GFC card again when he can’t balance the books..even after raiding the Future Fund.

  • 5 Stillgotshoeson // Oct 12, 2011 at 9:35 pm

    Now we wait 6 more months when he has an article in the paper saying it is worse than he thought… Of course the masses will be acutely aware of this by then…

  • 6 Greg Atkinson // Nov 7, 2011 at 3:12 pm

    “Recent economic developments will tell the Treasurer that the dream is over – that the 2012-13 surplus has slipped back into deficit,” said Chris Richardson, partner at Deloitte Access. “But the politics of that announcement are horrendous, with a fired up Opposition no doubt set to remind the public that no Labor Government has run a surplus since 1989-90.”

    Source: Australia’s Swan reaffirms budget-surplus pledge

    “Recent economic developments”? – I don’t think the debt problems in Europe or the economic woes in the U.S are all that recent. But that is what Wayne Swan and a bunch of so called market experts will use to explain why they completely misread how the global economy was tracking.

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