Oliver Milman theguardian.com, Thursday 18 September 2014

The economists argue the government’s chief aim shouldn’t be to generate a surplus but to generate employment

‘The timing and method of deficit reduction must be balanced with other economic and social goals, including job-creation.’ Photograph: Lukas Coch/AAP Image

A group of 63 leading economists have put their name to a statement rejecting the idea that Australia is facing a “budget emergency”.

The government has frequently cited Australia’s debt levels as a form of “intergenerational theft” committed by a spendthrift Labor administration, requiring a significant readjustment in the budget to get the country back into surplus.

But the economists’ statement stresses “Australia’s ability to manage public debt is very strong”, with the country not facing “any present or imminent debt crisis”.

Blaming the gap between government spending and revenue on large tax cuts during the early stages of Australia’s mining boom, the economists argue that the government’s chief aim shouldn’t be to generate a surplus.

“The most effective route to restored fiscal balance is to help more Australians find work, earn incomes, and pay taxes,” the statement reads. “But major and unnecessary reductions in government program spending and public sector employment would have the opposite effect.

“The timing and method of deficit reduction must be balanced with other economic and social goals, including job-creation, infrastructure needs, and social conditions.

“Governments’ economic responsibility is to establish policies which support Australian firms, workers, and communities to utilise their full potential to work, produce, generate income, and sustainably consume. “

The economists state that the government should be focused upon generating employment, pointing out that bodies such as the International Monetary Fund and the G20 have warned that severe spending cuts hamper job creation and economic growth.

“The true goal of fiscal policy is the need to ultimately stabilise the level of economic activity at full employment,” the statement reads. “We should not be satisfied until unemployment is back to rates Australia enjoyed in the early post-war decades. Debt and deficits should not be targets in their own right but simply treated as by-products of the required fiscal strategy.

“Major spending reductions by the commonwealth government are economically unnecessary and socially damaging. The first priority of Australian fiscal policy should be to strengthen investment, employment and growth. Government can and should pursue this priority without jeopardising its long-run fiscal strength and stability.”

The statement is signed by economists including former treasury secretary Bernie Fraser. Academics from the University of Sydney, University of Adelaide and University of Melbourne are represented, as well as former trade minister Craig Emerson.

This year’s budget papers showed that Australia has a net debt of $226.4bn, which is high compared with recent years but represents just 12.5% of GDP – below the 18.1% of GDP reached in 1995-96. This debt level is less than the UK, US, France, Italy, New Zealand and Germany.

Richard Denniss, executive director of The Australia Institute, which gathered the economists together for the joint declaration, said it was “bizarre” that the views of economists had been ignored in the debate over Australia’s debt.

“The debt isn’t a crisis, the real crisis would be having one million people unemployed in Australia,” Denniss told Guardian Australia. “Unemployment is rising, which makes it a very bad time to be making cuts to the budget.

“It’s meaningless to say the debt might be a bit higher in 30 years’ time. If the government really was worried about long-term problems, you’d think they’d be worried about climate change, and yet they downplay that.”

Denniss said revenue could be significantly boosted by reforming tax concessions for superannuation.

“That would bring in $40bn and there’s not much you can’t do with $40bn,” he said. “Unfortunately, Australians have been substantially misled about the nature and extent of the so-called budget emergency. I hope that economists can help reassure them that no such crisis exists.”

'Budget emergency' denied by 63 leading Australian economists | World news | theguardian.com