Speaking to InvestorDaily, SunGard head of buy-side risk research Laurence Wormald said Australia’s budget deficit is not a “severe thing” in global terms.
Despite the lamentations of the Coalition, the current federal deficit relative to GDP is not a very significant problem, said Mr Wormald.
“The problem with austerity budgets is that they can slow growth and they can delay recoveries,” he said.
Pointing to the UK experience, Mr Wormald said austerity budgets in that country during 2011 and 2012 “clearly had an impact on growth”.
“The stimulus needs to be carefully applied. Infrastructure spending is an example of spending that is clearly good for growth,” he said.
“But cutting certain kinds of welfare and certain kinds of social payments – whatever you think about the politics of it – is clearly going to have a dampening effect on growth.”
Taking welfare payments out of the economy will inevitably slow growth because that money is “simply not there to circulate in the economy”, he said.
“It will be interesting to see whether [the Coalition] takes a view that it needs to stick to a low deficit path, but the evidence from other countries is that it’s good to be thinking about stimulus – even if you are fiscally conservative,” said Mr Wormald.
“In Europe we now face some deflationary scenarios as a result of austerity politics,” he said.
