Fernando MonteiroThe Federal Government Budget 2009-10
May 18th 2009 00:46
The really big event this past week was the Australian Federal Government Budget presented to parliament by Treasurer Wayne Swan. It offered the prospect of a $58 billion deficit in 2009-10, but notice that, even without doing anything the deficit for the next four years would be $210 billion.
This is so because of the automatic stabilisers of the budget. The automatic stabilisers are the progressive tax rates for individuals and the company tax rate and the dole payments. When the economy is in recession less money gets collected as tax and the dole payments increase injecting money into the economy. When the economy booms the tax rates remove more money from the economy and, in this case, help repay the deficit.
The budget deficit has been the main point of attack by the federal opposition. This has accused the government of irresponsibility. But in their own alternative budget the opposition could not make the deficit better, if it didn’t make it worse. The problem is that we are facing a recession greater than most people can remember and, as we all know, for great maladies strong medicine is needed.
There is nothing irresponsible with spending government money in a recession. In fact, during the Great Depression of 1932-38, governments cut all spending advised by classical economists who, hysterically, said that a recession for a government was the same as for a household and that all expenses should be cut.
It took the genius of John Maynard Keynes, heralded as the greatest economist of the twentieth century, to show the opposite. In his The General Theory of Employment, Interest and Money, he proved that government spending in recession would help to re-start the economy and shorten the recession. As a matter of fact, when asked by journalists how the money should be spent, Keynes said that bills could be put into bottles and these buried deep into a mine and then other people teams paid to unearth them.
The Rudd $900 payments were quick in action and the statistics did show some positive reaction in retail figures. This money does not stop there. It goes further into the suppliers and their employees, producers and so on in a wave like form.
The budgeted spending on infrastructure is both needed, having been neglected during the Howard years, and a good employment of stimulatory money. It’s just a pity that it may take many months to show up in statistics.
Besides all this, the really big issue is not the budget deficit but the unemployment rate now at 4.5 per cent and expected to reach 11 per cent in 2010-11 or one million people. Unemployment kills an economy and a society. When scores of people lay idle incomes and disposable incomes are low, aspirations and energies are held back, morale is low and even gross domestic product is lower than it could be. Moreover, peoples’ suffering becomes great.
Concentrating on the budget deficit instead of the unemployment rate is the wrong thing to do.
This is so because of the automatic stabilisers of the budget. The automatic stabilisers are the progressive tax rates for individuals and the company tax rate and the dole payments. When the economy is in recession less money gets collected as tax and the dole payments increase injecting money into the economy. When the economy booms the tax rates remove more money from the economy and, in this case, help repay the deficit.
The budget deficit has been the main point of attack by the federal opposition. This has accused the government of irresponsibility. But in their own alternative budget the opposition could not make the deficit better, if it didn’t make it worse. The problem is that we are facing a recession greater than most people can remember and, as we all know, for great maladies strong medicine is needed.
There is nothing irresponsible with spending government money in a recession. In fact, during the Great Depression of 1932-38, governments cut all spending advised by classical economists who, hysterically, said that a recession for a government was the same as for a household and that all expenses should be cut.
It took the genius of John Maynard Keynes, heralded as the greatest economist of the twentieth century, to show the opposite. In his The General Theory of Employment, Interest and Money, he proved that government spending in recession would help to re-start the economy and shorten the recession. As a matter of fact, when asked by journalists how the money should be spent, Keynes said that bills could be put into bottles and these buried deep into a mine and then other people teams paid to unearth them.
The Rudd $900 payments were quick in action and the statistics did show some positive reaction in retail figures. This money does not stop there. It goes further into the suppliers and their employees, producers and so on in a wave like form.
The budgeted spending on infrastructure is both needed, having been neglected during the Howard years, and a good employment of stimulatory money. It’s just a pity that it may take many months to show up in statistics.
Besides all this, the really big issue is not the budget deficit but the unemployment rate now at 4.5 per cent and expected to reach 11 per cent in 2010-11 or one million people. Unemployment kills an economy and a society. When scores of people lay idle incomes and disposable incomes are low, aspirations and energies are held back, morale is low and even gross domestic product is lower than it could be. Moreover, peoples’ suffering becomes great.
Concentrating on the budget deficit instead of the unemployment rate is the wrong thing to do.
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