O Australia! Will Turnbull/ Morrison follow Canada's Liberal government?
W&D recently wrote of the sliding Canadian economy and the approach of its new-ish Liberal Prime Minister, Justin Trudeau.
(Just to remind readers, in Canada 'Liberal' is roughly equal to a Malcolm Turnbull; whereas 'Conservative' is sort of a Tony Abbott. And Justin is the son of former Canadian Liberal PM Pierre Trudeau).
Trudeau's government on Tuesday brought down a mildly expansionary budget, increasing government expenditure and not offering a return to surplus for at least five years. Last September, he had campaigned on three fiscal pillars, each of which has now been shredded (can one shred a pillar?): a deficit cap of C$10 billion; declining debt/GDP and a return to surplus by FY-20. Interestingly, Trudeau reduced the amount promised on infrastructure spending and considerably increased welfare spending.
Australia's budget is now on Tue-3-May. W&D's question is: will Turnbull/ Morrison follow Canada's path? Or will the much bandied fiscal austerity commence?
W&D's answer is partly in the above quote of Gough Whitlam (duh, Turnbull wants to win the election). And partly in economic reality.
The economic reality is that low interest rates have failed to hoist the economy. Whilst this is most clearly an American and European phenomena, in Australia the lowest interest rates on record have not caused the Australian economy to work up so much as a sweat. People haven't borrowed more to invest - they have borrowed to buy investment properties or bigger houses. Companies have borrowed to pay bigger dividends.
The monetary authorities have become, to W&D's mind, nothing more than lab rats frantically pressing a bar in hope that more food pellets will come out of the chute . W&D ponders that Turnbull knows this. Having commenced addressing some of the regulatory constraints on the economy (competition review, construction industry reform, etc), he can use the budget to reframe fiscal policy.
Hopefully, that will be fiscal policies directed at increasing productive investment throughout the economy. That is why such policies as significantly cutting company tax and significantly investing in infrastructure are fine ideas. Fiscal expansion of the right sort is okay.
Fiddling with the tax regime (e.g. personal tax down, superannuation tax up) is a side issue, is meaningless and a sop to lazy journalists or populist politicians who haven't the brains to think deeply about what Australia really needs.
W&D is optimistic enough to think that we-the-taxpayer might see a truly amazing budget.