Lessons to be learned from surplus U-turn

I started this letter on December 18 based on wishful thinking and behold it worked. 

On the day of writing, December 19, the government finally abandoned its unachievable goal of returning to surplus at the next budget.

The surplus-versus-deficit argument had reached the farcical, with one side gleefully aware of the other side having to break another “promise” while praying for such failure, regardless of what would be best for the national economy. 

The simpleton political argument became that surplus equals good and deficit equals bad. Yet in the real world, budget balance is just a means to an end. Budgets are made to serve the economy and the economy’s function is to serve us – no more no less. It would be best for us not see the economy as an instrument to balance the budget, not visa-versa. 

Was it wise for the Labor party to hammer the surplus in 2012-13 message for political purposes? Surely not, without a caveat. Big mistake. 

Unfortunately, the coalition has already indicated that it will have three successive surpluses if elected in 2013. Expect that promise to be watered down, unless government receipts improve spectacularly in 2013-14-15. 

They may have to, of all things, resurrect the mining super-profits tax. We, the voters, seem to be captive to the political truism that a deficit is bad and a surplus is good. Yet we forget that our own level of borrowing goes contrary to this truism. 

We expect our government to, at minimum, balance the budget, where a budget is an educated guess, not fact.

Depending on circumstances, budget deficits/surplus may be both bad or good.  

A lot of us firmly believe that if a government goes into deficit, it is spending more than it raises in taxes. Conversely, that going into surplus the government is spending less than it earns. That’s far too simplistic. 

Enter economic downturns, in particular, a global one. Then, it may be a good thing to go into debt, rather than cutting expenditure in order to “preserve” the holy grail of surplus. 

A large economic downturn would be far more costly than interest payments on borrowings. 

If we take on a mortgage based on two incomes and one falls away, we’re in trouble. This happens to government income too from external factors. 

Our present government is managing the economy quite well, unless of course you believe that good management has only one criteria – surplus.  

David Klein,

Bendigo

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