Australia's chief economists have warned Joe Hockey not to rush the budget back to surplus, saying the urgency of the deficit was being exaggerated for political purposes.
Interviews with four chief economists at banks and financial institutions revealed a common scepticism with the “budget emergency” described by Prime Minister Tony Abbott and his Treasurer, Mr Hockey. All economists cited Australia’s “enviable” budgetary position compared to other rich countries, and none thought the speculated “deficit levy” on high income earners was an intelligent way to repair the budget.
“I don’t think you could make the case that there is a budget crisis,” said HSBC chief economist Paul Bloxham, responding to Mr Abbott’s description of the “emergency” that would force dramatic changes in the budget.
Mr Bloxham said he did not think a deficit levy on wealthy Australians was necessary “because I don’t think we need to urgently get the budget back to surplus".
“It needs to be done in the medium term,” he said, adding that he would prefer the government made structural reforms – such as broadening the base of the GST – rather than the short-term fix of a “debt tax”.
Bank of America Merrill Lynch chief economist Saul Eslake said it was important to get the deficit under control in the longer term, but there were serious risks involved in moving too quickly.
“The economy is still fairly soft. Growth is below trend,” he said. “I don’t question for a moment the seriousness of the long-term problem. But I don’t see any particular urgency about 2014-15 or 2015-16.”
On the most recent figures the Australian government’s debt is $191.5 billion, forecast to rise to more than $600 billion. The forecast deficit is $47 billion, but all economists said these figures were tiny – compared with other OECD countries – as a percentage of the overall economy.
“Most countries would be envious of Australia’s public finances as they currently stand,” said Barclays Australia chief economist Kieran Davies, who, like the other economists interviewed, believes long-term, structural changes to the economy are required rather than short-term fixes like a debt tax.
Ideas floated by the economists included abolishing negative gearing, taxing trusts like companies, broadening or raising the GST, reducing the capital gains tax discount and tightening tax breaks for high income earners’ superannuation. There was no budget urgency that would justify temporary “debt tax” rises, they said.
“We don’t need a surplus tomorrow,” said Chris Richardson, economist and partner at Deloitte Access Economics.
“We don’t even necessarily need it in five years time. I’m more than happy with us getting back to sustainable fiscal finances over the long term. “The politics would tend to suggest moving earlier rather than later but on the economics there’s no rush.”