Wayne Swan was putting a positive spin yesterday’s Mid Year Economic and Fiscal Outlook, which is essentially a little end of year budget.
As Swan was at pains to point out, Australia’s economy looks absolutely tip-top compared to the debt-ravaged economies of the United States and Europe.
Growth for 2011-12 might have been downgraded from 4% (as forecast in the May Budget) to 3.25%, but there are several EU finance ministers that would kill for those numbers.
Yes, employment growth might be 1.25%, but at least our economy is adding jobs. And yes we might be set to post a deficit of $37.1 billion for 2011-12, but we are going to bounce back to surplus as Labor promised in 2012-13. Okay, it’s only $1.5 billion but let’s not be too critical. Again, it’s better than the alternative.
That’s the international context. These are the sort of numbers that earned Wayne Swan the title of World’s Greatest Treasurer.
But what about some local context? I think the view from the engine room – the SME community – might be pretty different.
In this decidedly patchy economy, where economic growth has been largely quarantined to the mining and related sectors, the idea that growth projections have fallen from 4% to 3.25% will be greeted with a degree of concern, especially when we look at Treasury’s projections for the following three financial years, where growth will actually fall to around 3%.
I think there will be plenty of SMEs very worried that the hidden message of this mini budget is that the economy will continue on much the same growth trajectory for the next four financial years. If that is going to mean a patchy economy where only mining does well, then the line of SME entrepreneurs queuing to celebrate Swanny will be short.
That’s the problem with constantly comparing Australia’s economic position to other countries. Yes it is great that we’re outperforming the rest of the developed world, and yes the global context does explain the pressures on our economy.
But having a great economic position compared to the rabble of Europe doesn’t help your average SME pay the bills or close a deal.
I think SMEs may also be concerned about whether yesterday’s $7 billion worth of budget cuts are only the start of some really serious axe swinging.
Swan’s surplus projection is frankly hard to believe. As Stephen Bartholomeusz pointed out on Business Spectator, the idea that the Government could actually produce this number after presiding over a $14.5 billion blow out in the last six months (when the projected deficit for 2011-12 has increased from $22.6 billion to $37.1 billion) is hard to swallow.
If Swan and Labor want to persist with the surplus promise – they shouldn’t, but they’ve backed themselves into a bit of a corner now – then there will be more serious cuts to come.
While some belt tightening is clearly necessary, dramatic spending cuts at a time when Europe is in recession and global economic growth is anaemic isn’t the sort of stimulus SMEs will want if conditions deteriorate.
Swan faces some big challenges if he wants to retain his World’s Best Treasurer tag.
The uncertainties around the situation in Europe and the United States are the biggest challenge facing Swan. But there is also the introduction of the carbon and mining taxes, continued political uncertainty and fragile consumer confidence.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
