Page 3291 - Week 08 - Wednesday, 22 August 2012
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The government is also pleased with the findings of the Centre for International Economics and their report. I will take a bit of time to highlight these findings.
In relation to the territory’s economic forecast, I note that the CIE concludes that the forecasts appear to be reasonable, including that gross state product growth forecasts are considered to be appropriately conservative and reasonable; that CPI growth is sufficiently cautious and plausible given that it is highly unlikely that the large capital works program for the territory will lead to higher than forecast CPI growth in the territory; that the wage price index assumptions are satisfactory; and that employment growth forecasts are within a plausible employment range and the low to flat employment growth for the 2011-12 fiscal year and the 2012-13 fiscal year appropriately takes into account job cuts in the commonwealth public service.
The CIE highlighted the significance of the taxation reform, which it considered would lead to a more sustainable revenue base in the long run. Specifically the CIE outlines that the tax reform package comes at the right time, as the ACT is anticipating getting a lower share of commonwealth GST revenue under the new funding formula. They also considered the capital works program as justified public sector investment to support the ACT’s state final product. Finally, they noted that each of the savings initiatives introduced in the 2012-13 budget seem plausible and achievable.
These findings are testament to our principle of responsible financial management practices. This is in stark contrast to the recommendations included in the dissenting report—which appear to ignore, utterly, the observations and conclusions of the committee’s independent expert adviser—in which people draw their own conclusions on the budget and the government as fiscal managers, based on little or no evidence.
Let me take a moment to run through a few of the dissenting report recommendations which contradict the expert advice.
The dissenting report recommends that the government be “condemned for its failure to implement sound fiscal policy”, on the basis of returning budget deficits. There is a wealth of literature on the appropriateness of accepting temporary deficits for economic and social policy reasons. Returning a budget deficit is not in itself a failure to implement sound fiscal policy. In the CIE briefing on this matter, the committee’s expert adviser observes:
There are a number of complex trade-offs involved in deciding whether or when to run a budget deficit and how quickly to return a budget to surplus.
These trade-offs are outlined in the table within the paper, including government spending to boost private demand; borrowing for long-term investments that increase the productive capacity of the economy; and that deficit phases should be sustained as long as necessary to boost the economy. It is highlighted that budgets must be countercyclical and need to have sufficient flexibility to return to surplus. We have a plan to return the budget to surplus, and the objectives of this plan are clearly articulated to provide a measured approach to return the budget to surplus through balancing various trade-offs.
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