Tuesday, May 08, 2007

The Australian Budget 2007 - an international perspective

I have just listened to the Australian Treasurer, Peter Costello, deliver the Australian Government budget for 2007-2008.

The media will be absolutely full of it for the next few days. For that reason, I will leave any detailed comment until after the dust has settled. In the meantime, I thought that I should make a few comments from an international perspective.

In 1964 Donald Horne coined the phrase "a lucky country". He mean the phrase ironically. In his own words:

In a hot summer's night in December 1964 I was about to write the last chapter of a book on Australia. The opening sentence of this last chapter was: 'Australia is a lucky country, run by second-rate people who share its luck.'

Australians took the phrase "a lucky country" literally, something that distressed Donald Horne as it did some others. Something of this comes through in the wording of the link I gave.

I have never accepted Horne's view of Australia's people or those who run the country. But there can be no doubt that we have indeed been a lucky country. Consider this.

We have now had 15 years sustained economic expansion. This has allowed repayment of Government debt to the point that many in the finance sector actually want the Government to issue new securities because they need secure Government securities to underpin, benchmark, capital markets.

The Australian Government has run consistent budget surpluses. Even after this year's election linked spend, the projected surplus next financial year is one per cent of GDP. Compare this to the US where the Government is presently running a a deficit of three per cent of GDP.

The continued growth in Australia's gross wealth has begun a profound change in Australia's power position.

Australia is just two per cent of the global economy, a tiny percentage. Yet the Australian dollar has become of the world's top five traded currencies.

Australian military forces are serving in a variety of theatres, but we still have a budget surplus. We are buying more military equipment and will do so to whatever degree is required to achieve our single most important strategic objective, maintenance of superiority when it comes to the immediate defence of the Australian mainland. So far, we can afford to do this.

Now the Government is investing current funds to ensure that we meet future needs.

The Future Fund was created to meet future unfunded public service superannuation liabilities. With that in place, the Government is creating a $15 billion endowment fund to pay for future higher education capital costs.

I suspect few Australians realise the significance of these moves. In essence, we are behaving like an oil country, saving now to meet future needs once the oil runs out.

Now before anyone thinks that I am making a statement in support of the current Government, although I reserve the right to change my mind here at a later point, I have no doubt that the Labor Party would manage the economy in an okay fashion.

All this sounds great. Why, then, am I worried?

I think that part of my concern lies in what I perceive to be Australian arrogance.

Australia is a big power in its immediate region. We behave like a big firm in a small town, carrying a local arrogance into a bigger environment where it is simply not warranted.

A second part of my concern lies in an uncertainly that we are in fact doing what is required to take advantage of the window we have been given. This is where I need to look at the budget details.

As I write I see that Neil recommends that we listen to classic FM rather than the Treasurer. Tsk, Tsk!

Many of the things announced tonight will set the parameters in just the areas that Neil us interested in. Labor may change things, but they are also going to end up accepting many of the parameters now set. So we commentators need to focus.

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