Tuesday, 1 October 2013

The budget

I'm a bit busy given it is school holidays but I will simply relate to the kouk's recent column on the budget.

He claims it is possibly the most contractionary budget we have seen since 1971. I agree.

Just a few things he did not mention.

Nominal GDP, is well below trend and hence the reason is the budget is not in the black. Thus there has been no cyclical boost to Revenue nor any reduction in outlays indeed it has been quite the opposite yet the deficit has fallen substantially. why is this?

It can be only because the structural part of the budget has been attacked. A contractionary budget when the terms of trade is falling means  only one thing.

Weak economic growth.

Wow If I called this budget expansionary I would be embarrassed. Now I forget just who did that?