Monday, 23 January 2012

Peter Costello Needs to Read the Budget Papers

Former Treasurer and Board Member of the forever under-performing Future Fund, Peter Costello seems to be at it again.

Costello is reported on the web site saying:
  • Australia will end up in the same economic position as Europe if the government doesn't start to curb spending, says former Liberal treasurer Peter Costello.   "Europe at the moment is suffering under a mountain of debt that it can't service," he told Macquarie Radio on Tuesday.  Australia's longest-serving treasurer warned Labor to heed the lessons implicit in Europe's demise, saying the government could only spend money it doesn't have "for a while" before it will end up using all of its income to service its debt.
  • "This is what I have been warning about here in Australia for some time," he said.
  • "If the journey keeps continuing at the rate in the years ahead that it did in the last three or four years it won't be too long before we start experiencing European-type problems.

He seemingly hasn't looked at any Budget or MYEFO papers in recent years because if he did, he would find the following, as I have reported here ( and other places on this blog before:

  • Government spending to GDP averaged 24.2% of GDP during the 12 Budgets that Mr Costello delivered between 1996 and 2007. 
  • Government spending rose as a result of the stimulus measures during the GFC and peaked at 26.0% of GDP in 2009-10.  
  • It since fell to 24.7% of GDP in 2010-11.
  • Government spending to GDP is projected to be 23.6% of GDP in 2012-13.  
  • This will be around 1.5% of GDP below the average government spending to GDP ratio of the last 30 years and obviously below the average spending to GDP ratio in the Budget’s the Mr Costello delivered.


And for the record, in only in 3 years out of 12 Budget delivered by Mr Costello was the government spending to GDP ratio lower than the Gillard Government is projecting for 2012-13.

1 comment:

  1. This is a quote from Michal Kalecki's 1943 essay "The Political Consequences of Full Employment" [*]:

    "Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence."

    In other words, the loss of political leverage that public spending causes, weights more heavily than the benefits of economic recovery, in the business class' mind.

    Plutarch attributed this quote to Julius Caesar:

    "I assure you I had rather be the first man here [Alpine village] than the second man in Rome."

    The same principle.

    Costello is only channeling the spirit of the business class, if I may use an expression with mystical overtones.