In a last ditch effort to prevent the Reserve bank from raising Interest Rates, Treasurer Peter Costello was warned the China bubble and the US subprime mortgage crisis could cause ripple effects in Australia.
Prime Minister John Howard has distanced himself from Costello’s comments and refuses to elaborate. Howard has strongly denied the strength of the Australian economy is due to global forces such as a flood of easy credit and a resources boom steaming from a rapidly growing China. Rather, he stresses it is his good economic management causing Australia’s good economic prosperity.
Howard is also preaching to new cult members or anyone that is willing to listen that budget surpluses only occur under Liberal governments and deficits under Labour. It’s as simple as black and white.
At the moment, strong global economic growth is not only causing a windfall for taxes but is also helping to keep unemployment low. This means the government reaps in extra revenue from taxes and doesn’t have to pay as much out in unemployment benefits.
However with the global economy in a period of unsustainable growth and with the probability increasing of a correction, the likely result is a downturn in company profits resulting in job loses, less tax revenue and more unemployment. It doesn’t matter which party gets into power.
However it looks like Costello might have just let the cat out of the bag. If Labour gets in and the global economy crashes resulting in budget deficits, Costello is now on the record that it is nothing to do with a Labour government but rather global forces.
» Costello warns of tsunami arising – October 26th 2007.