WHY THE BUDGET IS MORE POLITICAL THAN ECONOMIC

The Federal budget has been a talking point lately. Budgets are never all good or all bad, so we take a look at the salient features of the budget in this piece, and explain why it is a good political budget but probably a bad economic one.
So the Abbott Government has unveiled its Federal budget this month. One can argue that it’s a bad time to be writing down a budget for a country: after all, the whole world is experiencing slow economic growth, there is a worldwide currency war on with more countries joining the race to cheapen their currencies, and the outlook for the next five years is – if you’re one for understatements – lukewarm.
The absolute right way to give an economy the kick it requires is, of course, to invest in long-term infrastructure. This means education, manufacturing, roads, airports, shipyards, the works. There is nothing that helps job growth more than infrastructure growth. But the problem with focusing on infrastructure is that the benefits accrue over a long-term. And when we say long term, we don’t mean a politician’s long term, which maxes out at five years, but a common citizen’s long term: twenty years, perhaps, or twenty five.
So what politicians tend to do as a rule is focus on short-term strategies that will offer temporary solutions to structural problems, and kick the can further down the road. Their strategy tends to be: let’s get some results in the next year or two, and then use them to win the next election.
This Government has done nothing different. Much of the spending in the budget is focused towards small businesses and families. But instead of giving them infrastructure, the budget gives them tax and welfare breaks. So there is going to be more money in the pockets of small business earners and people who have families.
Child support, especially, has gotten a big fillip. Families would get up to $21,000 year per child to assist with child welfare costs for parents who are working more hours.
The Government’s idea is that putting more money into people’s pockets will make them spend more, which will kick the economy out of its slumber into growth. But if only it were that simple. People don’t always behave as policy-makers expect. They may use the excess cash to pay down their debt, or they may choose to save.
We will only know in time whether or not this ‘political’ budget will solve any economic problem