We are about to get a lesson in the absurdity of political discourse: the government is going to be accused of “breaking a promise” if a global downturn prevents the budget from returning to surplus by 2013, or if it sensibly decides to put off the carbon tax.
Not that this is anyone’s fault but theirs. Treasurer Wayne Swan yesterday started talking about the 2013 surplus as an “objective”, but let’s face it — it was a promise. Swan and Prime Minister Julia Gillard unwisely signed it in blood and did not make it conditional.
Obviously returning the budget to surplus as soon as possible is always a good idea, but unlike in Europe and the United States there is no imperative for the Australian government to reduce debt.
They have also announced a carbon tax to start on July 1 next year that will have no impact on the budget, but still might not be a good idea anymore because it will represent a $2 billion wealth transfer from exporters to households.
Maybe the currency will fall and give exporters a boost that will offset the cost of the tax and the coming recession in Europe and the US, maybe not.
In normal life, we adjust according to circumstances. A company, for example, might decide to do something next year, but if things change the board will meet again and put it off. If they didn’t, they’d be sacked.
In politics, however, there are only broken promises; if you make a sensible decision to change course because the wind is blowing a different way, you get pilloried instead of praised.
Yesterday’s weak employment figures confirm what my colleague Robert Gottliebsen has been arguing for months: that the economy — global and domestic — is much weaker than anyone thought. Forcing the budget back into surplus by 2013 by cutting spending or raising taxes is probably a stupid idea, just as raising interest rates must now be off the agenda.
But the opposition and the media will now ensure that the most important issue is not how the settings should be adjusted for changed circumstances, but whether the government breaks a promise.
Same goes for the carbon tax. If Oliver Marc Hartwich in today’s Business Spectator roundtable is only half right about the dire future of the European Union and the euro, introducing a carbon tax next July would be the silliest idea imaginable.
All three of the economists on the roundtable — Hartwich, Warren Hogan of ANZ and Su-Lin Ong of RBC — are pessimistic about the global economy. They are not alone. The very best that can be hoped for is that the European and American economies muddle through this new debt crisis and they end up with low growth rather than a recession.
Last night, Bluescope Steel released a market update foreshadowing a $900 million write-down “given ongoing macroeconomic challenges”. It is also reviewing “options to align … domestic steelmaking production capacity to Australia’s domestic market demand”, which is obviously code for reviewing the operation of Port Kembla.
This is the sort of thing shareholders expect from their directors and management, but apparently taxpayers expect nothing but blind allegiance to the previously announced strategy from politicians.
That aside, Bluescope’s problems are a symptom of a wider malaise in domestic manufacturing and retailing, flowing from the elevated exchange rate and the slowdown in consumer spending because of the switch to saving.
In the circumstances, should the government press on with the planned carbon tax next year? Of course not, unless there is some miraculous renaissance of the developed world economy between now and then.
That looks extremely unlikely. Yet at a Town Hall forum in Perth yesterday, the prime minister vowed to press on with the carbon tax, because Treasury has advised that the economy will continue to grow even if it is imposed.
Right. That’ll be the modelling then. That model on the computers in Langton Crescent, Parkes, in Canberra, a million or so miles from the real world.
I think a greenhouse gas emissions trading scheme is desirable and inevitable, but what’s been happening lately in Europe and the US probably means it will take longer than expected for other countries to do it.
In the circumstances it would be wise for the government to review its options, to borrow a phrase from Bluescope. Doing it next July is looking less and less like a good idea and, like the CEO of a business, the PM and treasurer should be sacked for NOT adjusting their plans.
In the upside-down world of politics, however, you get sacked for being sensible.
*This first appeared on Business Spectator
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