Wayne Swan has finally announced the abandonment of the promise to achieve a budget surplus this financial year. Some observations
* Everyone with any understanding of economics knows this was the right thing to do. The idea of trying to maintain a balanced annual budget regardless of economic conditions is recognised as nonsense even by anti-Keynesians. In the absence of active fiscal policy, the standard recommendation is to maintain settings consistent with medium-term balance.
* Both parties have made an awful hash of this in political terms. Labor was silly to make the promise of a return to surplus on a specific date, and sillier to reaffirm it in ever stronger terms until very recently. Abbott and Hockey made a mess of their response. They could have used Swan’s announcement to dump their own surplus fetishism saying something like “since the government refuses to reveal the true fiscal position, we can’t promise to fix it in one year”
* With any luck, some of the appalling fiddles of the last few months, most notably the recent reallocation of aid funding to domestic funding on refugees can be reversed
* We still need a long term discussion about revenue and expenditure in the light of the global failure of market liberalism. I plan to address this in another post
Update Hockey has indeed backed off the surplus, showing more good sense than Abbott. I’m nearly alone in this view, but I think he is under-rated. Not a towering intellect, but still among the stronger performers on the LNP front bench.