Howard Goes for Make or Break Election Bribes

An interview with the Prime Minister heard on ABC Radio�s AM program while driving to work this morning:

CATHERINE MCGRATH: If you're so concerned about interest rates, why are you spending so much?

JOHN HOWARD: Well, Catherine, to start with on the spending. This spending, half of it� well a lot of it is not spending, it's tax reduction. I mean, you can't call the entrepreneur's tax break, you can't call the childcare rebate, you can't call that spending. They're tax reductions, they're tax benefits.

But on top of that the figures quoted are over a four year period. And when all of our election commitments are fully costed, added up and everything the surpluses we will project will be larger than the surpluses that were announced at the time of the May budget. [My emphasis]

So, a tax reduction is different in effect from government spending? You don't have to be an economist to work out that either way, there's extra money sloshing around in the economy. Extra money for the population to spend can be inflationary.

I suppose if the money's spent without the government going into deficit then there's less risk of pressure on interest rates, however, Howard is promising to spend revenue based on the current growth of the economy, projected four years into the future. The big risk is that the economy won't grow at this rate, and a slowdown will impact on the amount of money available for the government's promises. (And Labor's too, for that matter.) If this happens, the government will have to break the promises, or go into deficit.

There are warnings of a possible slowing down of the US and Chinese economies. Couple this to the oil price at near record levels, a tottering housing market and record levels of private debt, the promises of both parties may well be unattainable.

I will be interested to see how the opinion polls are effected by Howard's new election bribes. I recall that the budget handouts didn't bring on the expected poll bounce; maybe the same thing will happen this time. Perhaps the voting population is becoming immune to these over the top financial inducements? The political process would be all the better if this was the case.