The Mid Year Economic and Fiscal Outlook forecasts yet another budget blow-out of the sort that we've become used to over the last decade.
This time the budget papers predict a surplus in financial year 2019-20.
That'd be during the Abbott Government's third term.
For the last few years we've constantly heard the government has "obsession" with surpluses. Take this piece by David Richardson in The Drum here, or Alan Kohler in Crikey here.
MYEFO has demonstrated, beyond a doubt, why that "obsession" is so necessary.
Budget repair is not a trivial task that can be delayed until it is more convenient, or just sidelined in favour of social policy reform. It's never convenient. And there's always another social program that can be introduced.
Back in 2011 Wayne Swan wrote in an essay for the Fabian society "If we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again." That is, having splurged money while the economy was going down, they should save money when the economy is back up.
It's a shame that none of the Rudd, Gillard, or Abbott governments have ever had the strength or desire to make good on their words.
I wrote a grumpy piece for The Drum on the eve of the 2013 election after the Treasurer-in-waiting Joe Hockey downgraded his surplus promise. What had begun as a pledge to get the budget into surplus immediately became an ambition to be "on-track" for a surplus at the end of Coalition's first term.
At the time, Hockey's downgrade could have looked like prudent expectations management. In retrospect it was the entire political class throwing in the towel.
Budget politics is incredibly hard. Politicians don't win friends when they cut spending.
Yes, Labor is much at fault here — they made the deficit, and they're doing nothing to help clean it up their mess.
But there's a deeper story below all the political argy-bargy. And it's to do with the advice both Swan and Hockey have been receiving.
For a few months Hockey has been offering variations along the lines that the Australian economy is too weak to cut drastically. On Monday this assumed a more rigorous formulation. The budget is now a "shock absorber" for the collapse in commodity prices. If the government cut the budget harshly, "Australians would lose jobs and we will lose our prosperity."
The economic theory behind this is pretty orthodox Keynesianism. Under this style of thinking, the government's budget is a lever with which to manage the macroeconomy. Government spending doesn't crowd out private spending, it substitutes for it.
That's why Treasury don't want the Coalition to introduce new, large-scale spending cuts. They reason that a drop in government spending would lower economy-wide demand.
Almost all the cuts in MYEFO are designed to offset new spending announced since the May budget. The government's national security program and the conflict in Iraq are substantial new costs which have to be paid for. Hockey has sought out savings but only with the goal to leave the overall budget position where it is.
Can't the government just raise taxes to get into surplus?
Well, in the Keynesian story an increase in taxes would have the same macroeconomic effect as a reduction in government spending — suppressing demand and confidence. Hockey suggested as much in his brief press conference yesterday.
One Keynesian alternative is that tax cuts might help boost the economy. But by reducing revenue, those cuts would make the budget bottom-line even worse.
So, with the advice Hockey is getting, there's nothing to be done on the revenue side.
What we're left with is a sort of vulgar Keynesianism that relies on just one tool — spending, not revenue — to manage the economy's ups and downs. Monetary policy is seen as secondary. The real work is done by government spending.
In 2008 and 2009 the Rudd government adopted a kind of one-shot Keynesianism — a single, giant increase in spending to try to prevent Australia going into recession.
This was a sort of intellectual revolution for Treasury. Ever since the 1990s it had been sceptical about the virtues of stimulus spending. Sometime in the last years of the Howard government, Treasury changed its mind.
Rather than viewing fiscal policy as a break-glass-in-case-of-emergency fire axe, now Treasury is beginning to see fiscal policy as a way to micromanage the economic cycle, year by year, budget by budget.
We've had experience of this approach to fiscal policy before. In the post-war era, policymakers were mesmerised by the possibilities of the John Maynard Keynes' ideas. Grasping copies of his 1936 book, General Theory Of Employment, Interest And Money, they pored over the tea leaves of economic statistics and tried to match the budget to the economy's headwinds.
But this post-war budget Keynesianism was chaotic and unpredictable. Australian governments were derided as "stop-go" economic managers.
It would be nice to think that Treasury is better at micromanaging the economy in 2014 than it was in 1960. We're so much smarter than our grandparents. We have more and better theory, and more and better data.
But so far the only thing that confidence has given us so far is a surplus pushed further and further into the future.
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