John will not be voting in September's parliamentary election, but Julia Gillard holds his proxy. John is the Australian prime minister's imaginary friend, a fictitious figure dreamed up to crystallise the policy differences she has with Tony Abbott's conservatives. What would John do if his personal finances were going through a bad patch, Gillard asked rhetorically in a campaign speech this week. Should he opt for austerity, "dropping his private health insurance and replacing every second evening meal with two-minute noodles" until things came good?
"Of course not," Gillard said, arguing that a "rational response would be to make some responsible savings, to engage in some moderate borrowing, to get through to the time of higher income with his family and lifestyle intact and then to use the higher income to pay off the extra borrowing undertaken in the lean years." Australia faces the same dilemma on a national level and the Gillard option is the same as John's: a bit of belt-tightening and a bit more borrowing but essentially running up more budget deficits until coal and iron ore prices improve and the good times roll round again over the economic cycle.
Abbott, who was narrowly beaten by Gillard's Labor Party at the 2010 parliamentary election, has so far not introduced an avatar for his policies. But John Howard is his hero and the last conservative prime minister was an economic rationalist who used spending cuts to balance the books.
Peter Costello, treasurer through the 11 years of the Howard administration that ended in 2007, is goading Abbott to pledge to keep spending levels below revenue. Costello points to the 12-billion-Australian-dollar (12.3-billion-US-dollar) budget deficit expected this fiscal year, noting that it will be Labour's sixth straight overspend.
"Seeing we can't afford to pay for all the spending currently on the books, why should we spend more?" said Costello, who is now retired from politics. "I would be looking at ways to reduce the spending now, to put some money aside in the future." Labor is a fierce critic of what it calls the "mindless austerity" measures adopted in Europe to try and remove structural deficits.
Stephen Koukoulas, an economist with the Per Capita private think tank, also ridicules calls for tight fiscal policy to rein in a budget deficit that amounts to less than 1 per cent of gross domestic product. Eurozone countries, for instance, are required to keep their budget deficits to within 3 per cent of GDP. "What's the point of running a surplus if the economy is kneecapped?" he said in a blog.
Koukoulas points out that overall government debt, at around 10 per cent of the value of annual economic output, is not worrisome. The nation's triple-A rating is testimony to that. But Australians are not savers. Norway, Chile, Papua New Guinea and even East Timor have set up sovereign wealth funds to quarantine the windfall profits from petroleum and other resources, but not Australia.
"Rising commodity prices have been a great gift to the Australian economy from the rest of the world," Paul Bloxham, an economist with HSBC, a bank, said in a newspaper column. "Australia may not have made the most of this gift." Abbott, who opinion polls suggest will win in the September 14 poll, is not promising an instant return to surpluses and has not questioned mythical John's rationality. Others have suggested John's accountant would not have given him the same advice as Gillard. He would likely be told to live within his means rather than take on "extra borrowing" to maintain a lifestyle he clearly could not afford.
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