IMF gives up on Swan’s surplus …

I am a strong advocate of counter-cyclical fiscal policy – and just as I think we should push ‘go’ as things soften, I also believe that it’s important to be tight on the way out of a recession, as that enhances your ability to conduct agressive counter-cyclical policy when the need arises.

In the context of budget forecasts, I remain critical of the 2011/12 fiscal settings – however given the the local and global economies look materially weaker than expected, letting the budget slip back into deficit is clearly the right strategy.

Now, if only our Government would man-up, and support confidence by saying that they are willing to take this sensible course.

The IMF has given up on Swan’s surplus and he should too. His perverse surplus fetishism is actually going to make things worse.

Comparing the September and April Fiscal monitors, you can see that they have added ~1.5ppts of GDP to the deficit in 2011 and 2012, and ~0.5ppts from 2013 to 2016.

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4 Responses to IMF gives up on Swan’s surplus …

  1. alister says:

    But you know why Swan doesn’t. Because – stupidly – he committed to a surplus come what may, and – even more stupidly – he’ll be savaged up hill and down dale if/when he doesn’t deliver one, irrespective of the circumstances. The economic troglodytes on the Coalition front bench have decided that the presence of a surplus is the sole benchmark of economic credibility, and much of the press is happy to go along with that, presumably because they know no better.

    • Ricardo says:

      groan, i know …. the older i get, the more i am convinced that good policy is good politics — these fools have committed to something that’s not good policy, for political reasons, and as a result they are likely to suffer (further) in the polls.

  2. On Your Marx says:

    Totally agree. At present the fiscal consolidation has been impressive given revenues still haven’t had the benefit of the commodities boom.

    A surplus is only needed to offset somewhat the impact of commodities. if they (commodities)are weaker than previously thought then simply let the automatic stabilisers and interest rates do their job.

    Swan took a long time to be convinced by Henry to use fiscal policy against the GFC when monetary policy was clearly impotent.

    Let’s hope he eventually comes round this time because using tighter fiscal policy in the wrong circumstances simply makes the overall budget outcome worse.

  3. On your Marx says:

    Of course counter cyclical fiscal policy is not Keynesianism.

    Keynes only advocated using fiscal policy when there was a liquidity trap ( monetary policy doesn’t work or hardly works).

    Thus in Australia only the stimulus used in 2008 was Keynesian. At all other times you would simply use monetary policy and automatic stabilisers.

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