'Budget emergency' denied by 63 leading Australian economists

'Budget emergency' denied by 63 leading Australian economists

The economists argue the government’s chief aim shouldn’t be to generate a surplus but to generate employment

• Oliver Milman
• 
  
  
  
• 
  theguardian.com,
  Thursday 18 September 2014 10.04 AEST
  
• 
  

‘The timing and method of deficit reduction must be balanced with other economic and social goals, including job-creation.’
Photograph: Lukas Coch/AAP Image

A group of 63 leading economists have put their name to a statement
rejecting the idea that Australia is facing a “budget emergency”.


The government has frequently cited Australia’s debt levels as a form
of “intergenerational theft” committed by a spendthrift Labor
administration, requiring a significant readjustment in the budget to
get the country back into surplus.


But the economists’ statement stresses “Australia’s ability to manage
public debt is very strong”, with the country not facing “any present
or imminent debt crisis”.


Blaming the gap between government spending and revenue on large tax
cuts during the early stages of Australia’s mining boom, the economists
argue that the government’s chief aim shouldn’t be to generate a
surplus.


“The most effective route to restored fiscal balance is to help more
Australians find work, earn incomes, and pay taxes,” the statement
reads. “But major and unnecessary reductions in government program
spending and public sector employment would have the opposite effect.


“The timing and method of deficit reduction must be balanced with
other economic and social goals, including job-creation, infrastructure
needs, and social conditions.


“Governments’ economic responsibility is to establish policies which
support Australian firms, workers, and communities to utilise their full
potential to work, produce, generate income, and sustainably consume. “


The economists state that the government should be focused upon
generating employment, pointing out that bodies such as the
International Monetary Fund and the G20 have warned that severe spending
cuts hamper job creation and economic growth.


“The true goal of fiscal policy is the need to ultimately stabilise
the level of economic activity at full employment,” the statement reads.
“We should not be satisfied until unemployment is back to rates
Australia enjoyed in the early postwar decades. Debt and deficits should
not be targets in their own right but simply treated as byproducts of
the required fiscal strategy.


“Major spending reductions by the commonwealth government are
economically unnecessary and socially damaging. The first priority of
Australian fiscal policy should be to strengthen investment, employment
and growth. Government can and should pursue this priority without
jeopardising its long-run fiscal strength and stability.”


The statement is signed by economists including former treasury
secretary Bernie Fraser. Academics from the University of Sydney,
University of Adelaide and University of Melbourne are represented, as
well as former trade minister Craig Emerson.


This year’s budget papers showed that Australia has a net debt of
$226.4bn, which is high compared with recent years but represents just
12.5% of GDP – below the 18.1% of GDP reached in 1995-96. This debt
level is less than the UK, US, France, Italy, New Zealand and Germany.


Richard Denniss, executive director of The Australia Institute, which
gathered the economists together for the joint declaration, said it was
“bizarre” that the views of economists had been ignored in the debate
over Australia’s debt.


“The debt isn’t a crisis, the real crisis would be having one million
people unemployed in Australia,” Denniss told Guardian Australia.
“Unemployment is rising, which makes it a very bad time to be making
cuts to the budget.


“It’s meaningless to say the debt might be a bit higher in 30 years’
time. If the government really was worried about long-term problems,
you’d think they’d be worried about climate change, and yet they
downplay that.”


Denniss said revenue could be significantly boosted by reforming tax concessions for superannuation.


“That would bring in $40bn and there’s not much you can’t do with
$40bn,” he said. “Unfortunately, Australians have been substantially
misled about the nature and extent of the so-called budget emergency. I
hope that economists can help reassure them that no such crisis exists.”