Business News

Penny is OK, but Wayne isn’t!

| More

by Peter Switzer

Penny, all is forgiven but now it’s Wayne Swan in the frame as budget enemy number one. He’s the guy who is talking tough budgets and he’s blaming floods, cyclones, earthquakes, tsunamis and the nuclear fallout for a big cut in economic growth but why is everyone scared to blame the other culprit — the Reserve Bank?

For those who saw last week’s column, which explained why Penny peeved me, I must reveal that the Minister gave me a call and we had a nice chat. She took the observations I made that she was “a tough arse sheila”, and a number of other less than gentlemanly lines, like an intelligent adversary and she agreed to come on my show.

The “tough budget”

We agreed on some things and disagreed on others but she turns out to be more palatable than I thought, but Wayne Swan is becoming a greater pain in the neck trying to make excuses for his upcoming “tough budget”.

And I have heard economics commentators, who I call mates, falling for this unnecessary argument for fiscal toughness. You see, this need for a tough budget is only necessary if you believe we have to get back into a budget surplus by financial year 2012-13.

This was a political promise, which now is looking increasingly dumb and is one promise — unlike the carbon tax — which is worth breaking!

Economic growth predictions

Last week, the IMF cut our economic growth forecast from 3.5 to three per cent but other forecasters who are closer to the action, or should I say lack of action, in the Aussie economy because of too high interest rates, think the growth figure will be lower.

When an economy is facing tough headwinds now because of the natural calamities, interest rates and the high dollar, the last thing it needs is a tough budget purely for political purposes.

Treasury says Japan’s crisis will hit bulk commodity exports by $2 billion because demand for steel will fall until the Japanese start the reconstruction phase.

Many think we will grow fast in the second half of 2011 because investment intentions of business looks very bullish. The projections say up 24 per cent this calendar year coming and 38 per cent next year. However, these are just educated guesses.

If this budget on 10 May really took into account the recent battered business confidence and spooked home loan borrowers who are now saving like never before to get prepared for future interest rate rises, then it would be a cautious and positive budget — not a tough one!

Of course, this currently unpopular Government might be talking tough and then will come up with a softer, nicer budget but this would be at odds with the usual tactic of be hard in year one so you can play Mr Nice Guy in years two and three before the next election.

Changing PM

Lately we have seen the PM change before our very eyes. She says she is old fashioned and does not support gay marriage. She has talked about the value of the Bible, has become a Yankophile, bagged the Greens and had a shot at dole bludgers.

This swing away from her leftish past might make her more likeable in popularity polls but it’s more consistent with hardnosed economic policies. However, she does have a “they don’t love me” challenge at the moment and that could have an impact on what Wayne tells us on Budget night.

I will reserve my judgement on Mr Swan until after budget night.

Budget in focus

This week the Treasurer said tax collections over the first eight months of this financial year are down around $4.5 billion compared to forecasts with personal income tax collections down $1 billion on expectations while business tax collections were off close to $3 billion.

These shortfalls can’t be all blamed on disasters here and abroad. It proves our economy was struggling before the Reserve Bank slugged us on Cup Day. Effectively monetary policy was too tight and hurt economic growth and then the disasters kicked in. That’s why I say we don’t need a tough budget if you care about economic growth.

Get tough next year

In November, the tipped budget deficit was $41.5 billion for 2010/11. Next financial year we would go to $12.3 billion shortfall in 2011/12 and then bingo in 2012/13 we would hit pay dirt of $3.1 billion surplus in 2012/13.

The time to get tough will be next year and the year after because economic growth will be so good that it’s expected to turn our big deficit into a surplus. But to do this would take courage and, anyway, with a carbon tax coming next year that will be the time for serious sucking up to the electorate with compensation and that will hurt the budget’s bottom line!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Monday, April 18, 2011

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Abbott deserves a Tony Award for that speech!

When do we dump stocks?

Abbott’s budget reply: is he really trapped?

Budget 2013: what are the real issues?

Labor’s trap for Tony Abbott