A deficit scary? It depends on why it's there

[cherry*135]

I like reading Ross Gittins  (Economic Editor, SMH) columns. They make a lot more sense than stuff I read on here about the economy.

A deficit scary? It depends on why it's there

Far too much fuss is being made about this year's budget because politics has overtaken economics. I'm adding to the fuss, of course, but at least I'm trying to help people assess the economic significance of all the political argy-bargy.

When we see the budget on Tuesday night the deficit is likely still to be very big. How worried should we be about that deficit? And how urgent is it for the government to get the budget back to surplus? For the politically partisan, these are easy questions. If you're a one-eyed Liberal supporter, any deficit is a terrible thing and it should be eliminated ASAP. If you're a one-eyed Labor supporter, budget deficits aren't a great problem and to reduce them while the economy is in its present state could do great damage.

If you're interested in an economic analysis, however, it's not as simple as the political partisans imagine........

............Does it surprise you that, according to Richardson's figuring, no part of the overall deficit is cyclical? If it does, it shouldn't. You've been listening to politicking, not reading the economic indicators. Reserve Bank governor Glenn Stevens said this week the economy is growing at only ''a bit below trend''.

And this week we learnt the smoothed unemployment rate has been at 5.5 per cent for three months. Remember, economists regard full employment as an unemployment rate of about 5 per cent.

All this says most of the deficit we see on Tuesday will be structural. As we saw in last week's column, however, much of it will be the legacy of unwise decisions made by the Howard government (including, Richardson reminds us, its decision to stop indexing the excise on petrol, which is now costing about $5 billion a year).

To be sustainable, the recurrent budget does need to be in balance on average over the cycle. It would risk damage to the economy to try to eliminate a big structural deficit in one hit. But that will not excuse any failure by the Gillard government to get on with reducing it.

Read more: http://www.smh.com.au/business/federal-budget/a-deficit-scary-it-depends-on-why-its-there-20130510-2...

[i-need-a-martini]

I like Gittins too - tells it straight with no bias and no name calling or finger pointing.

But am you are wasting your time - he's a boring read to those used to hysteria. Plus his surname isn't Pickering or Bolt or Ackerman...

[catsnknots]

I really have no problem with having to run a deficit. I have a problem with a Government that does not know what it is doing... 

many people warned about overspending... many economists said the Swan was not acknowledging there was a problem looming.. 

it is not the debt.. it is the government that did not know a debt was coming even though it's income is increasing. 

[cherry*135]

I know 🙂 Just an alternative read (from those you mention) for any who might be interested in the Budget/deficit news.

[cherry*135]

Post 3, referring to martini's post.

[i-need-a-martini]

Cat - it's a bit too simplistic to say the govt doesn't know they are doing.

The govt came in at the tail end of an economy high on a resources boom and just in time for the world finance market to collapse. I suspect that getting back on an even keel will be a bit of a challenge.