Round and round some of the (Australian) budget forecasts

The Australian budget was released Tuesday, and why in the most part I (and the commentators) thought it was a sensible budget, there were a few things that looked a bit convenient...

First the budget forecast 3.25% inflation for next year where the Reserve Bank of Australia last week forecast 3.5%. The budget based this lower forecast on its conservative growth forecasts. This is good for the government, as the government wanted this to be a 'low inflation budget' (although 3.25% is still above the target). But the budget is slightly circular, the low growth forecasts and budget itself will lead to lower inflation as forecast in the budget, which justifies an inflation fighting budget, which is based on the forecast of lower inflation. The difference in forecast is also a part of the government saying to the RBA, "look please please don't raise interest rates again, we are doing our best".

It will be interesting to see whether the RBA agrees with this lower forecast in its next monetary statement. Assuming that nothing else fundamental changes, then this will be a major independent test of the budget... and not everyone thinks that the budget was enough for the RBA to lower interest rates.

The budget also forecasts unemployment to grow from 4.25% to 4.75%, a growth of .5%. Once again this growth is based on the very conservative growth forecasts that the budget has adopted, as lower growth leads to lower employment growth, leads to growing unemployment (leads to lower growth). Once again this benefits the government as it leads to lower inflation forecasts, wage moderation and justifies family welfare increases.

Swan probably is the 'luckiest incoming treasurer in Australian history', given he could afford to spend big and tax less. However sometimes the rhetoric around the budget has made me think of the Disraeli quote 'lies, damn lies and statistics' (or is that 'politics'), for all the anti-inflation / slashing government spending talk its very similar to what Costello would have done.