Sunday, 30 March 2014

Fiscal Policy hasn't changed all that much

In Opposition the present Government would state again and again the problem with the Government was spending.

We examined this and found this statement wanting badly.

In the last Budget we have details on Wayne Swan produced the tightest budget in budget history.Spending fell in nominal terms let alone real terms. Cash rates continued their down trend as the RBA saw no dangers of inflation.
When Wayne Swan released his last budget he followed advice and allowed automatic stabilisers to do their job. Thus the budget was mildly expansionary. The Present government came in and boosted this expansionary nature of the budget.

We can then surmise the Government when in Opposition persistently lied about fiscal policy as they are now doing the exact opposite of what they said they would. Indeed they are adopting very similar fiscal policy to Wayne Swan except it is more expansionary.

Whilst they are being hurt in the opinion polls now their obvious plan is to get the economy back to trend growth and then deal with the problems of the budget.
This echos my thoughts entirely. Of course a further fall in the terms of trade could see nominal GDP growth continue in its present weakened state and then their plans would explode in their face..

I also note that all the Government apologists have ignored this issue. Probably because they have no understanding of it.

Postscript.

Wow fancy forgetting about the causes of the structural deficit. There is no more problems of spending in terms of the structural deficit, It is all about Revenue. Mainly but not only income tax cuts that both sides of politics thought would be paid fro by company tax revenue.