Monday, July 28, 2014

The sensible Gittins

The "I'm an economist and you're not" folk of Catallaxy hate him, which is a pretty decent sign that he's probably right most of the time.

Ross Gittin's column this morning makes common sense on the budget.  For example:
There are many ways to skin the budget cat – some fairer or more sensible than others – and it's absurd for the government and its barrackers to pretend, Maggie Thatcher-like, that the measures proposed in the budget are the only alternative to irresponsible populism.

Anyone who knows anything about successful "fiscal consolidation" knows it invariably involves a combination of spending cuts and tax increases (including reductions in tax concessions – "tax expenditures").

And anyone who knows much about economics knows there's little empirical evidence to support the ideology that economies with high levels of government spending and taxation don't perform as well as those with low levels.

Yet Hockey and Abbott thought it sensible to propose a 10-year budget plan that relied almost exclusively on cuts in government spending – apart from the temporary deficit levy and much-unacknowledged bracket creep.

Keating points out that, combining all levels of government as a percentage of gross domestic product, Australia already has the lowest budget deficit and public debt compared with Canada, Japan, Britain, the US and the OECD average.

At 26.5 per cent, our level of total taxation seems higher than the Americans' 24 per cent, until you remember their budget deficit is 5 percentage points higher than ours. So the claim that we have a bloated, "unsustainable" level of government spending is itself unsustainable.


nottrampis said...

four fifths of fiscal consolidation comes from Revenue.
I haven't read Gittins.

you won't have much decent fiscal consolidation until trend nominal GDP arrives. Swan gave us the most austere budget we have EVER seen NOMINAL spending was cut for the first time.
It didn't work as it weakened the economy!

As usal Keynes was right. you do this when the economy is strong. That is why the Catallaxy clowns are always wrong.

Anonymous said...

"The sensible Gittins". LOL.