This week Treasurer Swan will bring down the next Commonwealth Government budget. To my mind, what is needed is a steady as she goes budget. Instead, the political need to achieve a budget surplus dictates a likely contractionary budget with some specific sweetners to ease the political pain.
This piece by the SMH's Tim Colebatch, Swan's budget nightmare in this year of uncertainty, summarises the position rather well.
4 comments:
Hi Jim
I'm way out of my (economic) depth here, but I wonder if this budget will now be even more contractionary to counter the RBA's desire to move inflation upwards? I'd just feel more comfortable if they were both rowing in the same direction, and preferably away from the waterfall.
kvd
To some degree, the reduction in official interest rates may counterbalance the effects of a contractionary budget.
I don't think that the Bank has any special desire to move inflation upwards. Rather, low inflation allows the bank to adopt a more expansionary approach while still keeping inlfation within the target band.
Sorry Jim. My understanding was that our present inflation rate is beneath the RBA's stated target range and projected to remain so without RBA intervention - hence my throwaway 'desire to move inflation upwards' comment - which itself was shorthand for what you rightly term 'expansionary'.
If my facts are correct particularly with regard to forward projections(always a worry with me) then it is my understanding that the RBA is committed to react in terms of its remit - i.e. 'move inflation upwards'
kvd
I see what you mean, kvd. However, the Bank is not acting because inflation is so low. The fact that inflation is low allows the bank to act. While the agreement between Bank and treasurer focuses on inflation, the Bank still has a broader remit under its Act.
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