Update 10.45am: Wayne Swan has cautioned that changes in global economic conditions can wreak havoc with Budget forecasts.
“The truth is that the global economy is capable of changing dramatically, quickly, and having different effects on the economy at different times,” he said, according to The Australian.
Australian Treasurer Wayne Swan will map out a decade-long strategy that will attempt to address the structural economic problems facing the national finances, according to a News Ltd report today.
It will be the budget equivalent of a Hail Mary pass – going long, and counting on a lot of variables such as sustained GDP growth to come together – for the recovery to work.
Malcolm Farr reports at news.com.au that the budget, which usually sets out spending plans over a four-year period, will set out a plan to fund the Labor government’s costly commitments for school funding reforms and the National Disability Insurance Scheme.
The Coalition supports both policies. The government is hoping Abbott will be backed into a corner and have to voice support for the government’s budgetary strategy.
Wayne Swan will outline spending cuts that will help fund the school funding reforms and the NDIS – and Abbott will be forced to reply with his planned cuts if he wants to fund both under a Coalition government – on top of the required cuts for his expensive paid parental leave policy.
But even as Swan prepares to hand down the budget in Canberra tonight there are more signs of potential land mines ahead for the economy.
The Australian dollar fell below parity with the greenback early yesterday, with some economists saying that the AUD might finally be entering a long-overdue corrective phase.
This has been largely driven by some strong positive signs out of the US economy, particularly on jobs and a growing belief that the US Fed is planning to get out of its phase of quantitative easing, which has had investors piling money into the greenback since late last week.
(Elsewhere on Business Insider today, Henry Blodget looks at how the US is rapidly reducing its budget deficit.)
There’s also the importance of China’s economy, to which Australia’s fortunes are now so intimately tied, as well as commodities prices. Australia needs to be able to forecast out the effects of these forces on the economy with degrees of confidence. When you get it wrong, well, you get the pickle that Swan is in now.
One of the major problems for Wayne Swan in running up a deficit in the national finances has been some misguided assumptions underlying the budget – the strength of the dollar, high commodity prices, and uneven recoveries in global economic regions following the GFC. In the coming years the government was expecting a much higher global carbon price from its carbon trading scheme than the $4 currently forecast.
The ability to produce sound long-term economic forecasting and contingency planning is fundamental to mapping out extensive policy reforms such as those the government has on the table. Even though the school reforms and NDIS are welcome proposals, unfortunately there isn’t much for Australian voters to be reassured about when it comes to this government’s ability to get the economic planning right on long-term initiatives.
Swan’s problem is even though he may have a plan, very few are likely to listen to it with much confidence tonight.
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