By Andrew Bolt ~
This election is a con and a scandal. Neither side of politics will save us from a looming financial crisis, even when our top financial bureaucrats go public with an unprecedented warning.
Treasury secretary John Fraser and Finance Department secretary Jane Halton used their Pre-election Economic and Fiscal Outlook (PEFO), which is an independent review of the budget required by law before an election, to call for greater commitment to controlling the growth of government spending…
[T]hey said the projections [of reducing Budget deficits] were sensitive to the underlying assumptions. For example, business investment has been slower to recover than expected. If this continued, it would cut the size of the economy by 0.5 per cent over two years, and add $5.4 billion to the deficit.
They drew attention to the fact that the medium-term projections over the next decade assumed that once the economy had returned to full employment, growth would continue increasing fast enough to keep unemployment steady indefinitely.
“That assumption is consistent with international practice, but it is benign,” they said, highlighting Australia’s exposure to any downturn…
They said a budget surplus that would provide a buffer against a downturn would be hard to achieve.
“Without considerable effort to reduce spending growth, it will not be possible to run underlying cash surpluses, say in the order of 1 per cent of GDP,” they said.
And slashing spending is what neither side will do – especially Labor. Worse, the Senate we’re about to elect will almost certainly block any Liberal attempts to get tough.
Worse still, Judith Sloan warns that Finance and Treasury have a history of producing PEFO forecasts that are actually far too optimistic:
Is the 2016 PEFO any better? Not really, but it comes with a warning that we shouldn’t really believe the figures.
In the spirit of innovation, the secretaries of Treasury and Finance have provided a little homily on the fiscal dangers that lie ahead even if they don’t really show up in the figures. Go figure.
For example, we are told “the medium-term projections continue established practice of assuming that, once the economy returns to potential, it remains growing at that rate. That assumption is consistent with international practice but it is benign”. In other words, it is bollocks.
Treasurer Scott Morrison … chose to kick [retiring Reserve Bank director John] Edwards out of the RBA tent because he was a Labor man.
Edwards told our sister paper, The Wall Street Journal, that the plans to balance the budget by about 2021 were “implausible” and that we risked losing our prized AAA credit-rating.
That was mild; it won’t get milder.
If the worst does happen, have no mercy on our political leaders and the journalists cheering them on. They were warned.
Maurice Newman, former chairman of the Australian Stock Exchange, despairs at the lack of economic leadership from Labor and the Liberals:
Our nation’s future is at stake…
[T]he 2016 budget is an optimistic document that asks us to believe that nominal gross domestic product will grow at 5 per cent this year and 5.5 per cent next. Given the Reserve Bank sees inflation dropping to 1.5 per cent this year, this implies faster real growth.
The official explanation is it’s because our major trading partners will grow faster than global growth. Really? Only in April the International Monetary Fund warned of a “subdued outlook for the world economy…”…
Indeed, of our five most important two-way trading partners, China, our largest, is expected to slow to 6.5 per cent growth this year (from 6.9 per cent) and to 6.2 per cent next. Japan is back in recession; the US grew at only 0.5 per cent in the first quarter; South Korea, according to the OECD, will decline throughout the forward estimates; and Singapore appears to be heading for recession. Add to this a contraction in Hong Kong, a downward revision in euro growth and economic implosion in Latin America.
It appears Treasury boffins are on happy pills…
Promises of “jobs and growth” make fine slogans, but are they more than that? Independent rating agencies such as Moody’s are sceptical and believe Australia is subject “to greater ‘event risk’ than most other triple A-rated sovereigns”. Markets agree and price Australia’s 10-year notes at the highest yield of the other nine triple-A sovereigns.
Policymakers turn a blind eye to Australia’s total debt… Our total debt is 190 per cent of GDP and growing fast. Our foreign debt has doubled in the past 10 years and has risen as a share of GDP from 50 per cent to 62 per cent in just three. Australia’s personal debt is the highest in the world.
Andrew Bolt writes for the Herald Sun, Daily Telegraph, and The Advertiser and runs Australia’s most-read political blog. On week nights he hosts The Bolt Report on Sky News at 7pm and his Macquarie Radio show at 8pm with Steve Price.