Wednesday, 24 April 2013

Budgets in Australia, New Zealand and Canada

Some people are cheering on wildly because NZ may get a balanced budget soon. They then compare that to Australia.

The only people who would engage in such practices are the fiscal ignorami.

New Zealand are not experiencing below trend NOMINAL GDP growth. Tax revenue is growing steadily as a % of GDP again as opposed to Australia where it hasn't.  They haven't experienced a TOT shock like we have and their public sector is adding to growth as opposed to Australia where it is detracting from growth.

Canada is forecasting getting back into the black but on the back of strong revenue growth however some people see problems.

Put it another way if revenue grows in Australia as is forecast in either Canada or NZ then we would be in the black quite easily!

I should add two more points
1) Whilst Nominal GDP is so weak then no-one will put the budget into the black. Larger spending cuts/tax rises will only make it worse not better i.e Nominal GDP would get weaker. Indeed you might bring on a recession
2) The latest CPI confirms  the strong REAL GDP but weak NOMINAL GDP trend.