From a blatantly partisan perspective I guess I am somewhat pleased that the RBA has deigned to stick its neck out and suggest that the Rudd Labor Government’s first budget is “mildly contractionary” overall. As Scott Murdoch notes for the SMH, this is manna from heaven with respect to economic credibility for the government. Certainly what we have seen over the last few months is that different economic commentators have interpreted the budget differently, with the result that the mainstream media outlets have been polluted with mixed messages. Inherently this sort of environment benefits the Federal Opposition, with Shadow Treasurer Malcolm Turnbull needing only to reference the expert opinion of some of the commentators who heavily criticised the budget to score some points. The government can of course reference the expert opinion of other commentators who offered begrudging approval, but the result of such a rebuttal is that the average observer is left feeling unsure of who they should really believe.
In this modern era of economic conservatism, of course, the opinion of the RBA board is held in markedly higher esteem than your average economist, and it is likely that Federal Labor is going to be able to dine out on this little “mildly contractionary” comment for some time. The “is not”, “is too” squabble between those two argumentative siblings in parliament (Wayne and Malcolm) has arguably just been settled for the time being; settled by the booming voice of an angry father that leaves Malcolm somewhat chastened and Wayne quiet, but vindicated.
Part of me can’t help wondering, though, whether the RBA board has gone too far by including an explicit summary interpretation of effect of Labor’s budget policies in its public minutes. The crucial line from the minutes is as follows:
Measured in terms of the change in the surplus, fiscal policy was expected to impart a mildly contractionary effect on the economy in 2008/09.
It is one thing to suggest that a certain policy measure is likely to be on balance inflationary or inflationary, and quite another to suggest without rigorous and public explanation that fiscal policy is on the whole inflationary or not inflationary. To be honest, I would have thought it was bordering on misleading to attempt to interpret fiscal policy based solely on the state of the surplus, without at all considering the associated policy measures that the government has implemented.
It’s likely that this little observation from the board was included flippantly rather than because the board’s impartiality is in question, but either way on the whole I don’t think it is particularly helpful – except for making the government feel a little good about itself.