Australian Treasurer Wayne Swan has announced that he intends to lift the target for the budget surplus, so that fiscal policy can help ease upward pressure on interest rates. He will proceed with tax cuts announced in the election campaign, but according to The Australian newspaper his comments signal that there is unlikely to be any further tax reduction.
Mr Swan said that the budget should be allowed to provide an “automatic” stabilising of the economy by building up much larger surpluses during the current boom conditions… Reserve bank minutes from November show that its board believed the previous government’s pre-election spending had neutralised this stabilising function of government policy.
Mr Swan said budget policy had been too lax under the previous government. Its spending had focussed on putting dollars in people’s pockets, boosting demand, rather than investing to raise the capacity of the economy to supply.
Once again a Labor government has had to fix the problems caused by the fiscally imprudent governments of the right. Whoever leads the Democrats will have to do the same for the US.
How ironic that because New Zealand has had a fiscally prudent Labour Treasurer in Michael Cullen, he is now able to offer sustained tax cuts without destabilising the economy. Swan is doing in 2008 what Cullen and Clark did in 1999, and New Zealand is much the better for it.