Those terrible “d” words

There is no denying that the rhetoric that the Prime Minister has employed to describe the current global economic situation is strong, and the Rudd Government’s actions so far have been tailored accordingly. Over a month ago, when announcing his government’s $10 billion package of stimulus handouts, Rudd described the current crisis as “the greatest global financial crisis since the Great Depression”. This assertion is not entirely unjustified when one considers the extraordinary ramifications we have observed so far, but on the other hand, the Prime Minister was walking on shaky ground by linking the current financial crisis to the word “depression”. It’s something like rhetorical guilt by association. Depression? Did he really say depression? As in, the Great Depression? And, so on.

In short, Kevin Rudd’s personal approach to the economic situation as Prime Minister seems to revolve around straight talking, with a cautiously pessimistic bent. If things could get worse, then the Prime Minister seems to want to make it clear to everyone that they should be prepared for things getting worse. Rather than trying to create an oasis of blissfully ignorant confidence at the head of government – something the Howard Government probably would have done in the same position – the Rudd Government seems hellbent on highlighting the uncertainty that does exist. Nobody really knows just how events are going to play out. Just like other governments and indeed commentators, Federal Labor does not really know if the current crisis is going to take several months or several years to peter out.

It is in this sort of environment that the Prime Minister has elected to finally entertain that great Australian shibboleth for economic “incompetents” – the dreaded budget deficit. Samantha Maiden has the details in The Australian, and the full statement delivered by Rudd to parliament is here:

Kevin Rudd has conceded for the first time that Australia’s budget may have to go into “temporary deficit” if the global financial crisis worsens.

“If Australian economic growth slows further because of a further deepening of the global financial crisis, then it follows that Australian revenues will reduce further,” Mr Rudd said.

“Under those circumstances, it would be responsible to draw further from the surplus and if necessary to use a temporary deficit to begin investing in future infrastructure needs including hospitals, schools, TAFEs, universities, ports, roads, urban rail and high speed broadband.”

“In fact, failing to do so would irresponsible – and would sacrifice growth and jobs. But any such action would need to be consistent with the discipline of maintaining a surplus across the economic cycle.”

It is probably well past time for one of the most misguided economic conventions of the modern era to be buried. Anybody who owns a home or invests in property will be able to tell you that it often makes sense to borrow money in order to invest for the future. Anybody who runs a business can tell you that it sometimes make sense to borrow in order to grow the business, even if the current bottom line is not healthy enough to support such a step. The doctrine that suggests that budgets deficits are always “bad” effectively is also suggesting that investment for the future should be mercilessly limited, and that important projects too big to be funded by governments should be dumped.

As long as the Rudd Government takes care to ensure that any funds borrowed are spent wisely and on measures that are effectively certain to benefit the national economic situation, I personally see no problem with the government going into deficit. It would obviously amount to poor governance to consistently deliver budget deficits, but the odd one, if put to proper use, can definitely work to the greater benefit of the nation.