Economists have given a damning assessment of the Coalition’s and Labor’s budgetary positions, saying neither party is preparing the country for economic shocks.
They say a negative credit outlook is now a possibility, as the S&P rating agency prepares to publish its annual review of Australia’s credit rating next month.
Former Reserve Bank board member Warwick McKibbin told Guardian Australia both parties were relying on Treasury’s assumption that nominal income growth will revert to a rate of 5% in two years to boost revenue and drag their budgets back to balance by 2020-21.
“But that’s purely an artificial assumption, it’s not based on anything other than convention,” he said.
Private economist Saul Eslake said neither party had provided convincing evidence as to why their huge spending commitments – the Coalition’s $48bn tax cut plan, and Labor’s multi-billion dollar health and education spending plan – would produce a stronger economy.
“At some point we are going to have to get serious about putting the budget back into surplus, or at least getting it back closer to balance than it is at the moment,” he said.
A war of words has broken out between the Coalition and Labor about the veracity of each others’ budget costings, with both sides claiming they are doing more to put the budget in a stronger position.
Labor released its budget costings on Sunday, saying it would have a larger deficit than the Coalition over the next four years, but would balance the budget at the same time as the Coalition, in 2020-21.
It claimed it would eventually have a larger surplus than the Coalition, $15.5bn compared with the Coalition’s $6bn by 2025-26 thanks to its policies on negative gearing and superannuation.
The Coalition attacked that announcement on Monday, saying Labor had finally admitted it would spend and tax more than a Coalition government, and leave the budget in a weaker position.
The finance minister, Mathias Cormann, said the Coalition’s 10-year plan would leave the country in the best position possible to deal with economic shocks.
“The net effect of our policy decisions on the budget bottom line is an improvement,” he said.
But Labor’s finance spokesman, Tony Burke, said the Coalition’s tax cuts would blow a multi-billion hole in commonwealth revenues, while Labor’s plans would eventually generate billions more in savings.
“The hit to the budget in year 10 of the [Coalition’s] corporate tax giveaway becomes $14bn. The improvement to the budget bottom line in year 10 from negative gearing and capital gains tax changes is an improvement of $8bn,” Burke said.
NAB economist Ivan Colhoun wrote to clients on Monday warning that Australia’s credit rating might be downgraded.
“S&P has said that Australia needs to broadly deliver the current budget forecasts to be consistent with maintaining the AAA rating,” he wrote.
“While NAB suspects the budget has not deteriorated sufficiently to provoke a downgrade, a negative outlook is a possibility.”
The director of the Grattan Institute, John Daley, said the Coalition’s plan to return the budget to surplus was “marginally less bad” than Labor’s.
“But neither side has a credible plan and that’s a problem,” Daley said.
“We’re in a far less secure position, in the event of a future economic shock, than we were in 2007. There are any number of countries that are fragile economically. It suggests you’d want a budget position that gives you more room to manoeuvre than we’ve got at the moment.”
The Coalition will release its costings on Tuesday to account for the policies it has announced since the budget in May.
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