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  • Writer's pictureShaun Brien

Stancing with Wolves (the 2021/22 Budgetary Stance)

We live in an era where for the past two decades the Federal Government has long promised a return to a budget surplus to help achieve fiscal consolidation over the medium term. A return to surplus would of course represent a contractionary stance where government revenues are greater than the value of government outlays.

Until 2020, this never quite eventuated due to various natural disasters (floods, bushfires etc) putting strain on government outlays (with support payments etc) and reducing government revenues (via decreased production, tourism etc). So the government was still in a budget deficit which is considered to be expansionary policy however the size of the budget deficit was becoming smaller and smaller.

It is important to know that a reduced budget deficit is not contractionary in nature. This is because whenever government outlays exceed revenues (eg a deficit), this aims to expand the size of the economy and a smaller deficit could only really be referred to as less expansionary in nature.

This takes us to 2020/21, where a little virus known as COVID-19 took the world by storm and led an estimated budget surplus in Australia to become the largest recorded deficit in history. Obviously, that was aiming to be expansionary as this was trying to stimulate the Australian economy out of the downturn caused by the reduction in global economic activity due to this pandemic. The projected 2020/21 deficit ended up being expected to be $161 billion, which also would lead to the level of public debt tipping to over $1 trillion.

Now it's the 2021/22 period and the Government has estimated an underlying cash balance of $106.6 billion in deficit as we recover from the COVID-19 pandemic. Although this is a $54.4 billion reduction in the side of the overall deficit this is still aiming to be an expansionary stance.

Whether the budget outcome will actually be $106.6 billion is another question altogether. The Federal government had specifically allowed for COVID disaster funding in this budget estimate, however I do not believe they expected the level and severity of outbreaks to be as high as it has been in 2021. The protracted lockdowns in Sydney (which will go until at least August 28 as of writing this post), are set to cost the government up to and over half a billion per week.

To summarise the overall purpose of this post.

Budget surpluses = contractionary stance.

Budget deficits = expansionary stance.

It's as simple as that.

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