The news from the mid-year budget review isn't as bad as it might seem. And I give Joe Hockey high marks for his wise response to it.
Despite any contrary impression the denizens of Canberra might have left you with, the budget is not the economy.
The economy, in which you and I live, work and spend, is much bigger and more important than Hockey's budget.
The
$10 billion blowout in the expected budget deficit for this financial
year is largely the result of falling mineral commodity prices and
weaker-than-expected growth in employment and wages, leading to lower
growth in tax collections, plus a bit from the government's troubles with
the Senate.
In other words, the blowout is mainly a reflection of problems in the economy, not a cause of them.
It
doesn't add to those problems, so it's not a reason for people to be
any less confident than they have been about our economic future.
Indeed,
the blowout is good news in the sense that it represents the budget
helping to maintain growth in the economy by having the government's
spending exceed tax collections, at a time when private spending isn't as
strong as we would like.
So Hockey is, as he says, allowing the budget to act as a kind of shock absorber, which is exactly what he should be doing.
What
he's promising not to do is attempt to get the budget back into surplus
in short order by cutting government spending or raising taxes at a
time when the economy is far from strong.
To pursue such a policy
of "austerity" - as conservative parties in the United States, Britain
and Europe have done - would be counterproductive. It would most likely
make the economy even weaker and thus make the budget deficit bigger
rather than smaller.
In setting his face against austerity, as he
said he would in the last weeks before the election, he is affirming the
policy he pursued in the May budget.
That budget proposed many
cuts in spending but, in net terms, their dampening effect wouldn't have
hit the economy until 2017-18, by which time it was expected to be
growing strongly and capable of withstanding the drag.
The fact
that the public and the Senate judged many of the specific spending
measures Hockey proposed to be unfair shouldn't cloud the truth that, in
its long-delayed dampening effect on the economy, Hockey was acting
with commendable judgment and restraint.
So, whatever his failings
as a judge of fairness or as a salesman, as a manager of the economy
Hockey has proved much wiser in government than he seemed likely to be
when in opposition.
Don't take much notice of the opposition's outraged criticisms of this midyear budget update.
That's just Labor trying to get even after all the unfair criticism and silly things Hockey said when it was in government.
None
of this means returning the budget to surplus doesn't matter. It does -
we can't run deficits forever. But the time for that is once the
economy is back to strong growth. Until then, it can wait.
