UBS thinks people have been too hard on Joe Hockey.
The treasurer this week revealed his first budget, which contained huge spending cuts and tax increases.
It was a controversial budget, and critics have not been shy in blasting the government.
But Scott Haslem and his team think it deserves more balanced coverage, since it provides the right mix of tax increases and spending cuts, and will return the budget to surplus.
From UBS’ post budget note:
The Federal Budget deserves more balanced coverage than it received. We think it achieved a good macro balance. In particular, it has an average fiscal drag no greater than ½%pt of GDP p.a., sufficient to gradually return the budget to balance in 5 years, & has a pleasing bias toward reduced spending rather than tax hikes. Most importantly, it back-weights the drag, with almost nothing near-term, but rising to ~1%pt by 17/18.
And, it gets Australia back in the black even faster than the Commission of Audit’s suggestions would have:
Its often said that Australia didn’t need such harsh measures, seeing as though our deficit is quite small compared to other OECD nations. UBS, as it did before the budget release, points out that this is too simple.
The problem lies in how quickly Australia’s finances have deteriorated:
While it’s not hard to understand frequent questions from those outside Australia as to why a AAA country with one of the lowest net debt ratios in the world needs fiscal repair, the answer is relatively clear. As the IMF has shown, Australia was facing the fastest growth rates of govt spending and the 3rd most significant jump in net debt of the major countries it monitors. Without some fiscal repair, Australia needlessly exposes itself to risks, if and when the cycle turns negative after 22 years of growth.
Basically, the budget was tough but necessary.
As Goldman Sachs said in its post-budget note, the government’s biggest problem now is trying to sell it to voters: “Much will depend upon the salesmanship of the new Coalition government to convince a skeptical public that the changes are necessary, equitable and will deliver genuine long term benefits.”
The problem is, that while this stuff might make perfect economic sense, its difficult to convince average Australians whose lives may become more difficult.
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