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Why in the name of god are we running stimulatory deficits in a boom?

By johnboy - 23 July 2012 9

Andrew Barr is having a celebratory crow about the performance of the ACT’s economy as recorded by a recent Commsec report.

The report found that:

• The ACT has Australia’s third highest economic growth, at 19.7% above the decade-long average, and behind only WA and NT, which both have large mining and resources sector investment projects.

• The ACT has the second highest population growth, at 1.79% per year, which is 24.7% above the decade-long average, and behind only WA.

• The ACT is the only state and territory to record housing finance commitments above the decade average. In the ACT the number of housing finance commitments is 5.0% above the decade-average and 4.4% higher than a year ago.

• The ACT is in the strongest position for new housing construction. In the March quarter the number of dwellings started was up 12.9% on the decade average.

• The ACT has the lowest jobless rate in the nation, at 3.6%.

• The ACT had the strongest growth in capital city home prices, up 1.3% on a year ago.

• In the ACT wages growth was 3.3%, with consumer prices rising 1.6%.

Which is all jolly good news.

So why is the ACT Government spending money it does not have, which will have to be repaid in a future quite possibly not as economically rosy, in these best of all possible times?

Treasurer Barr in his budget speech said he was stealing from the future to stimulate the economy:

This Budget is stimulatory. It protects activity and confidence, but it will not seek to expand unsustainably or carelessly. It will maintain activity.

One can’t help thinking there will be a grim reckoning after the election.


UPDATE 23/07/12 10:57: Treasurer Barr has tweeted this response back:

CommSec is a rear mirror view of relative economic performance. We have been performing well but the drivers of that growth are slowing.

The ACT Budget settings aim to keep the economy growing in a period of Commonwealth Government contraction.

In the long run, the federal spend will return to more “normal” levels. We were boosted by the stimulus spending and housing construction.

Overall the ACT economy tends to be counter-cyclical to the national economy. This is due to the strong influence of Federal spending.

What’s Your opinion?


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9 Responses to
Why in the name of god are we running stimulatory deficits in a boom?
dungfungus 9:26 am 26 Jul 12

Motoristparty said :

Also when you look at previous borrowings of $490 million to be paid back by 2015 and this year estimated territory borrowings of $790 million you start to wonder about that grin. Why do Governments budget to spend everything they have got plus, amazes me. Why not cut some waste and save a little along the way.

It’s only the start.

Motoristparty 8:48 pm 25 Jul 12

Also when you look at previous borrowings of $490 million to be paid back by 2015 and this year estimated territory borrowings of $790 million you start to wonder about that grin. Why do Governments budget to spend everything they have got plus, amazes me. Why not cut some waste and save a little along the way.

dpm 10:34 pm 23 Jul 12

It’s interesting that at the same time, we are also in a ‘crisis’ over housing construction!
http://www.canberratimes.com.au/act-news/act-in-crisis-as-housing-slumps-20120722-22ik2.html

It’s amazing that with lots of units going up in Bruce and Kingston, plus building in Crace etc in Gunners – let alone two brand new suburbs in Molonglo – that we are in ‘crisis’ over house building. Really, if that’s the case, is it time to consider that growth like that bragged about above can’t continue indefinitely?

Growth, growth, growth, blah, blah, blah…..

dungfungus 5:58 pm 23 Jul 12

johnboy said :

The European Union has not been the EEC for a very long time.

Do try and keep up with the times.

You know what I mean – I forgot to take my medication today – give me a break.

johnboy 4:11 pm 23 Jul 12

The European Union has not been the EEC for a very long time.

Do try and keep up with the times.

dungfungus 4:03 pm 23 Jul 12

caf said :

On the other hand, if we’re going to borrow to pay for infrastructure, best to do it while borrowing rates are low and wages are depressed (because the rest of the country, and NSW in particular, is in a slump).

We could join the EEC and get some seriously cheap money from them.

caf 2:30 pm 23 Jul 12

On the other hand, if we’re going to borrow to pay for infrastructure, best to do it while borrowing rates are low and wages are depressed (because the rest of the country, and NSW in particular, is in a slump).

PantsMan 2:07 pm 23 Jul 12

What f*&king use is expansionary fiscal policy in a territory the size of a postage stamp that has to import capital, labour etc from the rest of Australia, if not the world?

Barr just cannot man-up and conceive of, design, or impose any reform or fiscal restraint, so he says he’s a Keynesian fiscal visionary.

You’re right Johnboy, this is the peak, not the trough, and we are $300m in the can.

HiddenDragon 1:24 pm 23 Jul 12

Excellent point, JB. The ACT Budget estimate for 2012-13, announced last month by Mr Barr, was for a deficit of $315 million. The following week, the NSW Treasurer forecast a deficit for 2012-13 of $824 million. Noting that NSW has something like 20 times the population of the ACT, and even allowing for the possibility that the bring-forward of some federal funding to 2011-12 may have affected the ACT to a proportionately greater extent than NSW, this is a most interesting comparison. Perhaps NSW calculates its Budget bottom line on a somewhat more flattering basis than the ACT – perhaps not.

It is, of course, worth remembering that the ACT Budget includes all municipal functions, unlike the NSW State Budget. However, unless the ACT municipal functions are running at a substantial deficit (difficult to imagine given the already high levels of rates and municipal charges in the ACT) this would suggest that the budgetary position of the ACT “state” functions is even worse than the Budget bottom line for 2012-13 would suggest. Canberra home owners will be reminded of this when they get their next general rates notices, calculated under Mr Barr’s “progressive” new tax regime. Unpleasant as that may be for some, it may help to focus the hearts and minds on the fact that it all has to be paid for, including the further promises which will doubtless be made in the lead-up to the Territory election.

As to the future, it is very difficult to see anything other than squeezing at best, and slashing at worst, of federal spending in the ACT – so to the extent that we are still, in essence, a “company town”, assumptions about a cyclical return to surplus for the ACT Budget seem exceedingly optimistic. As you say JB, a grim reckoning ahead, no doubt.

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