A year ago, Australia's treasurer, Wayne Swan, boasted that the nation's budget for 2013 would have a surplus of 1.5 billion Australian dollars. This was supposed to herald a fall election campaign based on the wise stewardship of the ruling Labor Party and its prime minister, Julia Gillard. It now looks like Gillard's government is headed for the political scrapheap, for to its surprise, instead of a surplus, Australia's government budget is facing a massive and unforeseen deficit.
Australia seemed the last holdout from the fiscal ravages of the global economic and financial crisis. Buoyed by its robust minerals sector linked to exports to China, it seemed that the land of Oz down under was immune to the wave of unemployment and fiscal deficits afflicting virtually every other major advanced economy. Now Swan, with egg on his face, has embarrassingly revealed that the 2013 Australian federal budget has a projected deficit of $19.4 billion. The Gillard government is scrambling to impose rapid spending cuts in a fit of panicked improvisations.
How is it that Australia's budget went from modest surplus to big deficit in a matter of months? The government claims that unforeseen declines in mining revenues and the appreciation of the Australian dollar are to blame. The real lesson here is that governments during the ongoing global economic crisis have consistently displayed a poor ability to project their revenue stream, even in as short a time span as one year. This leads to the transcending economic lesson of Australia's current fiscal mess.
In virtually every major advanced economy, and especially in the debt-ravaged eurozone, the politicians are engaged in massive deficit spending schemes, claiming that their projections show that if their policies are maintained, within a few years fiscal deficits will be magically transformed into balanced budgets. On the other hand, competing politicians claiming that steep austerity measures will eliminate deficits are also relying on fuzzy math and illusory fiscal projections.
As Julia Gillard and Wayne Swan are about to embark on their political funeral dirge, they serve as suffering symbolism of how inept politicians are, be they for stimulus spending or budgetary austerity, in comprehending the fiscal dynamics of a large and sophisticated economy.
Follow Sheldon Filger on Twitter: www.twitter.com/EconomicCrisis