Wednesday, 4 May 2016

The Government hoist on its own petard

A bit further comment on the budget.

I am comfortable with the assumptions in the document.I can see no rubbery figures.Projections are not forecasts remember. I see reading STEVE from BRISBANE the peroxide princess has her knickers in a knot about nominal GDP forecasts being too high.
I would have two things to say there. Welcome to the club believing nominal GDP is possibly the most important variable in the document. Here we should give RICARDIAN AMBIVALENCE his due. He was the first to recognise this. ( Usually nominal and real GDO rise together but the TOT changes has made this redundant.) The second is She is assuming a drop in the terms of trade. this may occur but it is more likely they will at worst stay at present levels.The rises in Nominal GDP are totally consistent, as you might expect, with the TOT forecasts.

What the government hasn't done is more fiscal consolidation where their document says it is possible. Given their forecasts in nominal GDP I would have thought the public sector could add less to GDP than this document is forecasting ( which is roughly half the long term trend. )

You cannot argue the economy is in great shape and then say only minor fiscal consolidation is required.

You could argue that if you were unsure and the CPI figures gave you more reason for caution but the government is not arguing that.

The  political problems emanating out of the budget are the increase in prescription drugs and the obvious attack on bulk billing and they are of course related.

Add in the issue of young people being unable to get into the housing market which the government is exacerbating then we have an interesting election campaign coming up.