I myself after the handing down of a federal budget like to focus on the macroeconomic discussion and projections that appear in the budget papers, of which I will have more to say in the coming days.
I like to do this because the macroeconomic discussion and projections can provide useful insight into the framework or structure that underpins current and future fiscal policy, indeed economic policy more broadly.
The previous year’s budget forecast that GDP growth this year would be 3.25%, which was the trend rate of growth during the pre GFC “mining boom” years. At the time critics, myself included, argued that the global economy was in a period of “secular stagnation” and that it was unlikely that GDP growth would return to the pre GFC trend rate.
The government now expects GDP growth for this year to be 2.5%, a significant downgrade. For 2018-2020 it is expected that the economy will grow at 3% per year.
So long as secular stagnation obtains among the core economies we should be sceptical about such optimistic growth forecasts in Australia. It is telling that on the same day that the budget was released that the Reserve Bank lowered interest rates to a record low level in an attempt to stimulate more growth.
This means it is not likely that economic growth on its own will boost the budget bottom line.
These are important considerations because the Turnbull government is a neoliberal government committed to bringing the budget into surplus, as soon as possible, and adhering to the strictures of global credit rating agencies whose actions helped bring about the GFC and thereby the very deficit itself.
Because of its neoliberal nature the government won’t be putting into place higher corporate taxes, in fact its cutting these, mining profit taxes, a carbon tax and the like to significantly boost revenue.
The government, upon reelection, would most likely move to cut spending most especially spending directed toward the broader population such as social welfare. Furthermore, pressure would exist to revisit the raising and broadening of the GST, which was a Turnbull policy commitment.
Secular stagnation could also be used for supply side arguments to boost productivity and economic growth through further neoliberal labour market reforms following an election.
One can see in the macroeconomic framework and the reality of secular stagnation the contours of future policy. This is a budget to not offend as many people as possible pre election, but after a July election the reality of secular stagnation, in the absence of a decisive break from neoliberal policy, almost mandates a return to Abbott era policies.