Economists say ‘steady course’ on spending cuts should steer the economy through
PwC chief economist Amy Auster said the government had taken a measured approach with its budget spending cuts.
“Fiscal policy is like the Titanic – it’s a big ship. If you make sudden cuts, you risk turning too far one way, with no time to get back on the correct path. The government has embarked on a steady course, which is a sensible approach,” she said.
Commonwealth Bank’s head of Australian economics, Gareth Aird, said households were being squeezed on several fronts and the government had another budget in May to make any spending changes.
“There is no need for radical surgery at this juncture,” he said. “The consumer sentiment surveys are concerning. There is no need to further cut spending at this stage as the lagged impact of rate hikes hits home borrowers.”
But EY chief economist Cherelle Murphy said the budget pointed to a further lift in the federal government’s share of total public expenditure over coming years.
She said while a high level of government spending during COVID-19 was appropriate, it was not now.
“The treasurer said he is prepared to make difficult decisions in difficult times, but instead in this budget, we saw that he’d prefer to defer them. The government was simply not brave enough in making the necessary spending cuts we need now,” she said.
Committee for the Economic Development of Australia senior economist Cassandra Winzar also believes Chalmers should have gone further.
“The government has found a number of savings, but the issue isn’t so much about what it should have cut further,” she said. “Rather the government has failed to tackle the structural issues looming over the budget. Fundamental reform is needed, including a systematic approach to evaluating spending programs.”
Macroeconomics Advisory managing director Stephen Anthony said Chalmers had signaled he wanted to consult on the next steps before the May budget.
“Obviously, some mix of tax reforms and spending cuts will be necessary,” he said. “We had all better cross our fingers and hope global events permit the treasurer to stick to his leisurely consultation schedule and don’t force him to act sooner.”
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