Gareth Hutchens July 11, 2014
Prime Minister Tony Abbott. Photo: Kate Geraghty
Leading economists have rejected the federal government's claims of a ''budget emergency", saying it is only a medium-term "problem" rather than a crisis, which should be dealt with sooner rather than later.
The economists who took part in BusinessDay's midyear economic survey also rejected the notion of a "debt crisis''. One said it was an abuse of the language to apply the term to Australia.
Fairfax Media surveyed 25 of Australia's leading economists late last month, drawing on the expertise of big banks, universities, private wealth funds, unions and industry groups.
Labor, the Greens and Palmer United Party senators have added $12 billion to projected budget deficits this week.
"Australia is not facing a budget or a public debt crisis right now," AMP Capital chief economist Shane Oliver said. "Our budget deficit and net public debt are low by OECD standards, our bond yields are low and foreign investors are happily buying our bonds."
Chris Caton, from BT Financial, said it was "simply absurd" to suggest Australia had too much government debt.
Saul Eslake of Bank of America Merrill Lynch said the incoming Conservative government in Britain had faced a "budget crisis" and a "debt emergency" in 2010. The projected deficit was 10 per cent of gross domestic product, and net public debt was in excess of 60 per cent of GDP.
To apply similar terms to Australia with a prospective deficit of 2 per cent of GDP and net public debt of 15 per cent of GDP was "to abuse the English language".
On average, the panel expects the Australian dollar to drop to US86¢ by June 30, a fall of about 8 per cent from its recent range of US93¢ to US94¢.
Those surveyed expect the economy to grow 2.8 per cent for 2014-15, slightly lower than the budget forecast of 3.1 per cent. They believe the Reserve Bank will keep interest rates on hold for the rest of the year.
Most of the economists said it would be better to fix the expenditure side of the budget before raising taxes.
Scott Haslem, of UBS, said the budget's focus on more efficient government and reduced middle-class income welfare, while quarantining only the poorest, was "warranted".
But Richard Robinson, of BIS Shrapnel, said Australia needed a "decent mining tax" and state land taxes, both recommended by Labor's Henry tax review.
Neville Norman, of University of Melbourne - the only economist to explicitly say that Australia had a debt problem - was of the view that the debt ought to be reduced through tax increases.
"Preferably by raising the GST to 18 per cent, [with the] federal government to keep all increased revenue and give 15 per cent of it as compensation to low-income earners''.
Jakob Madsen, of Monash University, said the best way to get out of a debt problem was to boost economic growth. "It automatically lowers the debt-GDP or budget deficit-GDP ratios," he said.
"It is, therefore, vital that the Australian government implements a growth strategy that is feasible through increased research and development, and investment in education."
