Politics

The view from Billinudgel

The government’s perverse pursuit of surplus
Aiming to be back in black in the current climate is bad economics

Prime Minister Scott Morrison and Treasurer Josh Frydenberg. Source: Twitter

Scott Morrison has a new obsession: the budget surplus. In spite of his assurances to the contrary, this has not actually been delivered, and there are growing doubts that it will be. The storm clouds and headwinds of which the prime minister and his treasurer confusingly warn us could well blow it away.

But it remains ScoMo’s fetish, replacing his pet rock, the lump of coal he brought lovingly into the parliament in 2017. The quest for surplus is now his reason for being, his “precious”. And nothing is to stand in its way – certainly not economic reality.

The problem, as any first-year student of the dismal science could have told him, is that a surplus is not an end in itself, but a tool to be used if and when the circumstances demand. In the current circumstances, a surplus would be not merely counterproductive, but downright perverse.

A surplus is a good idea when things are going well. That’s why Peter Costello was able to rack up a few of them when the mining boom was at its peak – the economy was, if anything, overheating and a surplus could provide a dampener, a corrective.

But today, however desperately Treasurer Josh Frydenberg tries to keep the myth of a strong economy in the spotlight, what is needed is not a dampener but a stimulus, and a large and urgent one. The fall in interest rates and the tax cuts may help, but, as the Reserve Bank governor Philip Lowe has repeatedly declared, they will not be enough – a big kick along on immediate construction of infrastructure is the obvious solution.

 Frydenberg is apparently considering something along those lines, but will not countenance abandoning, or even postponing, the much-heralded surplus: it has become a test of the government’s credibility, and given that this is already tenuous, there is no real choice.

But there should be. As with food, clothing and politics, there are fashions in economics that come and go, and the idea that a surplus is inherently desirable is one that has well and truly passed its use-by date.

There was time when supply-side economics was going to save the world from recession; it is now derided as trickle-down theory, simply pandering to the rich and greedy. What was once called the J curve, a graph like a hockey stick, was going to be the lever that would haul us into prosperity. This too has been relegated to the bench.

And I can remember when a high exchange rate was regarded as a national virility symbol. Now we prefer it to droop in order to enhance exports. And thus it has been with interest rates: a fall used to be good news, but last week it was more widely seen as a sign of stagnation, if not imminent recession.

The only thing that has given the putative surplus some hope is the unexpected jump in iron ore prices, fuelled largely by the disaster that effectively closed down the mines in Brazil. But this bonanza will not last, and even if Morrison can preserve his surplus for one year, there is little prospect of it continuing over his hugely optimistic forecasts.

Which is probably just as well. What is left of our economy simply cannot afford it.

Mungo MacCallum

Mungo MacCallum is a political journalist and commentator. His books include Run Johnny Run, Poll Dancing, and Punch and Judy. Visit his blog, The View from Billinudgel.

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