Opinion

Dear Mr Swan: use smoke and mirrors and keep your head down

Here is my submission for the federal budget: Dear Mr Swan, please ensure that the return to surplus is done with smoke and mirrors.

I don't agree with Ralph Norris that the commitment to provide a surplus next year is mindless: the politics of it and the international symbolism are both very potent. Having promised it, you must deliver and since you and the prime minister are both still going on about it three weeks out from budget night, you must know it's in the bag.

But don't tax mining companies or superannuation to achieve it, or sack a few thousand public servants or, God forbid, attack middle class welfare so they pull in their spending horns even more than they have already.

Yes, you should definitely trim here and there, but please focus your attention on fiddling the economic parameters to conjure up a bodgie 2012-13 surplus. No one will mind, really, and by the time we find out the numbers were all wrong you'll be well in retirement anyway, or definitely heading there.

I certainly won't attack you on budget night if the growth and commodity price forecasts underpinning the surplus look silly and unachievable. Promise. I'll nod sagely and say: "Well, they do look a bit robust and all that, but who are we to second guess Treasury's modelling? Those chaps have bulging foreheads and vast whirring computers. Must be correct."

And if, after Ralph Norris's outburst, you're feeling a bit weak in the knees about the economics of rushing to surplus, as opposed to the politics of it, may I suggest you pick up a copy of last week's Spectator magazine and read a piece in there by Fraser Nelson about Sweden's pony-tailed, earinged finance minister, Anders Borg.

I suspect you'll be passing to Mr Borg the glorious mantle of Euromoney's finance minister of the year later this year. You won last year (oh the sheer joy of the memory, especially since Costello never did) because your stimulus and debt kept Australia out of recession; Anders Borg was recently named Europe's most effective finance minister by the Financial Times because he did the opposite.

As the The Spectator's Fraser Nelson writes: "What marks him out ... is how he responded to the crash. While most countries in Europe borrowed massively, Borg did not." His only stimulus was a permanent tax cut, and he cut welfare to pay for it.

Sweden is now in surplus, and Anders Borg is a hero because Sweden had the fastest growing economy in Europe last year. Meanwhile the stimulators – Spain, Portugal, UK, etc – are mired in debt and recession.

Let's not forget that Sweden's starting point was a tax to GDP ratio of close to 50 per cent; Australia's, including all state taxes, is 30 per cent. The federal tax to GDP ratio was 23 per cent.

That aside, surpluses are definitely preferred to deficits and there is plenty of sound economic theory to the effect that tax cuts financed by reduced government spending are good for private sector activity, not bad. On the other hand, tax cuts financed by debt, as practiced by Ronald Reagan and George W Bush, are very bad indeed.

There won't be tax cuts in this budget, I accept that, but please, please, Mr Swan, go easy on the tax increases. Don't whack the miners again and leave super alone.

Far better to use smoke and mirrors and keep your head down until the galloping press pack returns to Craig Thomson or, better still, the Catholic Church.

This article first appeared on Business Spectator


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