Mathias Cormann ignores economics for the sake of politics


Earlier today, Finance Minister Mathias Cormann tweeted that the “MYEFO update was Labor’s last Budget”. The MYEFO was the Mid Year Economic and Fiscal Outlook released in December, some three and a half months after the election.

He appears to have been serious, I don’t think anyone hacked his account and it was not an April fools joke.

Like a fire fighter refusing to put out a fire because he didn’t start it, Cormann’s comment and view of the budget is very disturbing from a couple of angles.

Regardless of who’s budget it is, the Coalition is in government thanks to a thumping win in the election four months ago having campaigned heavily on a platform of reducing government debt and running budget surpluses. It has to make the decisions on spending and taxing if it is to establish economic policy credibility. There is near universal agreement that a path to budget surplus is a reasonably important macroeconomic policy objective over the next couple of years, depending on the economic growth momentum from overseas and domestically. If the economy records decent growth, a budget surplus is desirable if not essential.

Bitching and scratching over the background to the budget and not how to get towards a surplus shows a dreadfully misguided layering of priorities from the new Finance Minister.

Another issue with Cormann’s tweet is that the Coalition has been in office four months now and the sum total of policy changes it has taken to date has added to the budget deficit through a ramping up in spending and the abolition of some taxes. In other words, the Coalition is over 10% of the way through its term and is adding to the budget deficit not cutting it.

The MYEFO document Cormann refers to (that has his name on the cover) has a simple line in table 3.4 which confirms that “effect of policy decisions” between the Pre-Election Fiscal Outlook and the MYEFO totalled $13.7 billion. See the MYEFO here http://www.budget.gov.au/2013-14/content/myefo/download/2013_14_MYEFO.pdf

These policy decisions by the Abbott government and obviously not Labor include the outlay of money to the RBA, the abolition of the carbon price and the mining tax and some additional infrastructure spending.

In passing, I would note also that some of the wider budget deficit between PEFO and MYEFO was due to a downgrade in world economic activity, something that I suspect even Cormann can’t sheet home to Labor. Between PEFO and MYEFO, Treasury cut the world GDP forecast for 2013 from 3% to 2.75%; for 2014 from 3.75% to 3.5% and for 2015 from 4% to 3.75%. These are important changes that have impacted on the budget position that the Coalition is now managing and have zero to do with the prior government.

For the sake of Australia’s economy, now into its 23rd year without a recession, let’s hope Cormann snaps out of his Opposition rhetoric and does something useful on the policy front to ensure the economy remains in sound AAA shape for years to come.



Posted in Stephen Koukoulas | Leave a comment