Aussie budget 2011/12 is too weak

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My mate Chris Joye has been hosting an enjoyable debate on the budget
on his excellent blog.

Until now, it has been good sport but I think the latest contribution
from him the so called ‘invisible insider’ on the hill is weak.

The insider accuses those who are critical of the budget of not
understanding economics, and then indulges in some politics – accusing
Costello of being wasteful, and Swan of being prudent.

Rather than defend myself I am going to quote from ex RBA head of
domestic markets – a man with 30years experience at the RBA.

Broadbent said that:

“When I saw the growth numbers from the budget, it was indicative to me that they [the government] are not pulling back fast enough.

“When you see [growth] numbers starting with a four, and with private domestic demand growing around 6%, well what it is telling me is that there is not enough slowdown in other parts of the economy to make way for the mining sector”.

Broadbent, a 30yr RBA veteran, agrees with the consensus of market economists:

“if you are going to be successful in boosting the economy during the GFC, you need to be successful in pulling away as quickly as you can so you can leave enough room for the private sector to expand.”

Broadbent goes on to link fiscal policy and monetary policies:

“one way you can get growth back closer to trend if fiscal policy is a given, is for the the RBA to put a harder break on the economy”

I find it unlikely that so many professionals are wrong, and don’t understand economics. More likely, the insider has a political axe to grind. Most surely, that’s what the shot at Costello suggests.

One comment

  1. Well if his criticsm was wrong you might have a point however Costello significantly increased the structural deficit in the boom years.

    Fiscal policy is in fact contractionary as is monetary policy somewhat it is the commodity boom that is boosting the economy

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