The problems in the United States’ economy are a reminder about why it is important for countries to get their budgets in order, Treasurer Wayne Swan warns.
Mr Swan used a speech in Brisbane on Wednesday to outline the economic backdrop for his May 10 budget.
While going over well-trodden figures of the impact from this summer’s natural disasters and the tragic events in Japan on the economy, Mr Swan also said revenues would not be as great from the second phase of the mining boom as they were in the first.
Opposition finance spokesman Andrew Robb said such assumptions were “just absurd”, while Opposition Leader Tony Abbott said this was just more excuses because of the government’s economic mismanagement.
“How could the mining boom be good for the Howard government but bad for the Gillard government if not for the fact that this government cannot be trusted with money,” Mr Abbott told reporters in Perth.
But Mr Swan brushed aside such attacks, saying the opposition didn’t have a fundamental grasp of economics or of any of the policy dilemmas facing the nation.
“In the short term, the outlook for the Australian economy in the first four months of this year changed quite dramatically and it’s very important that we talk to people about that,” Mr Swan told the Queensland Media Club.
But the medium-term outlook is strong and there will be the same pressures on the economy as there were in the pre-global financial crisis (GFC) mining boom.
“That means tough decisions are required,” he said.
“Restraining spending and budgeting for surpluses will ensure that we don’t compound the inevitable capacity pressures that will emerge with mining boom mark II.”
He said that while the government took no joy in making these cuts, it was better to undertake them now, rather than having to make harsher cuts later.
“What’s happening in the US is only another reminder why it’s so important for countries to have a credible fiscal consolidation strategy,” Mr Swan said.
“While we adopted our strict fiscal strategy at the height of the GFC, which has stood us in very good stead, the US is struggling to put one in place now.”
Global credit rating agency Standard & Poor’s this week warned US policymakers that the world’s largest economy risks losing its AAA rating if they didn’t agree to start reducing its massive budget deficit in the next couple of years.
Mr Robb said any budget problems facing Mr Swan were all the government’s own making.
“He is trying to suggest that he has major problems – that it’s the floods, that it’s Japan and now, incredibly, today, it’s the mining industry,” Mr Robb told reporters in Sydney.
“The problems are not because of the revenue side, the phoney war is because they have mismanaged their expenditure side.”
Finance Minister Penny Wong said the opposition was not in a position to lecture anyone about fiscal responsibility.
If in government it would be delivering a deficit in every year of the forward estimates on the basis of the costings the opposition have put forward, she told ABC Radio.
“They had a $10.6 billion black hole in their election costings and they’ve simply added to it in all of their decisions to date.”