So, the budget allocations for the arts seem fine and the new funds will be warmly welcomed by those who get them. To my mind the real problem is that I don’t believe the government’s optimistic forecasts for the economy that it is depending on. The arts like everyone else in the economy will be affected if Australia’s economy shifts into recession.

As Alan Kohler noted on The Drum the Budget is relying on a bumper 11% increase in revenue in 2012-13, including company tax up 9% and personal tax up 8%. That’s just not going to happen.

It is extraordinary that so few financial commentators, including the Reserve Bank have not, and continue not to see a slow down in the Australian economy coming, despite the signs that the asset inflation that has funded much of it for so long was inevitably going to slow down as households reached debt saturation and had to take stock of their debt ratios.

Westpac chief economist Bill Evans explained what I’ve been thinking for years with respectable authority in Jessica Irvine’s piece for the Sydney Morning Herald last week.

“From a bigger picture point of view, Evans warns that Australia’s unique period as a ”miracle economy” has come to an end. ”What was the main reason why we had this ‘economic miracle’? Households geared up, they borrowed and they put it into houses. House prices were going up and people drew down on that wealth to spend.

”That’s what kept us going for 15 years; it wasn’t any miracle and that’s come to an end. So we need something else – presumably something like the mining boom, but that’s centred around such a narrow base, it doesn’t represent the answer.

”We have got to get some stability. But we’ll never quite go back to the way things were. The global debt boom is well and truly behind us. And it’s not just us, it is the world.”
And that’s the nub of it. In the same article it noted:
But concern remains that economic growth is weaker than the government believes. In updated economic forecasts released yesterday, the Reserve Bank sliced its estimates for economic growth and inflation, suggesting further room to cut interest rates, as needed, to stimulate the economy.

Westpac’s Evans is tipping the Reserve will cut by another half a percentage point by the end of this year. ”What we’re seeing is that people are feeling nervous about their jobs,” he says. ”If you’re feeling nervous about your job security what you don’t want to be made aware of is your high rate of debt”, and Australia’s household debt to gross domestic product ratio is the highest in the world.
”If the asset that’s supporting that debt is performing, it’s OK. But in the case of Australia, it’s not. House prices are edging down.”

Then there’s the obsession with a surplus. The blithe insistence that we need a surplus to ‘save for a rainy day’ isn’t looking convincing to those looking out the window at the brewing economic clouds that are already here, as well as those settling over Europe.

But thanks to the government optimism it’s as though the surplus will arrive with little or no ‘pain’ thanks to an economy on the upswing and the fact that we don’t much care about defense of foreign aid.

I think a lot of commentators doubts about pulling cash out of the economy to achieve a surplus will have been allayed by the amount of redistribution that’s been put into this budget, which will arguably lessen its contractionary effects. Of course they’re now condemning the government for it’s big spending!

The desire on the surplus seems to be a split between the big mining companies and everyone else. Mining companies seem to think a surplus is a good thing, putting money aside for a raining day. And in a sense I get that: they’re looking at the currently high commodity prices and saying they may not continue, which they won’t. This may speak to what they see in the mirror of themselves, conditions may not stay favourable, make what they can now, project it forward. Just as they look at a looming tax and decide to turn their profits into capital investments so they can avoid giving their cash to anyone else. A whole lot of other people looking at the contraction occurring in the economy are wondering why a surplus, which may slow things down further is a good idea at all.

If there is another downturn the government will not be in as strong a position as it was to react with a stimulatory package. If there’s tight fiscal discipline and debts are not allowed to climb we’ll be better able to borrow when we need to and not be crippled by the cost of paying it back. Sure. Borrow from whom exactly? And even so Australia is still in a far better position to do that than any of the European countries or even the US.

What’s missing I think is discussion about whether the government can really ‘save’. Government’s are more like valves; they can slow things down and speed things up but they can’t really reserve terribly well. Their controls are the creation of investment opportunities in bonds or borrowing from elsewhere, by cutting taxes, printing money or increasing distributions but all of that is pretty much within the existing environment. Everything else is accountancy.

In fact, the whole idea of saving for the future by anyone is a misleading one. Unless you’re putting your money under the bed, you’re giving your ‘savings’ to a bank who then lends it to someone else, whether to buy a house or build a freeway or start a company. It’s redistributed and the proceeds (the fees) for that redistribution come back to you in interest. But it doesn’t get tucked away. It’s all still going around in the same current environment, with all the inherent risks that may involve.

Governments can’t really tuck anything away either. The impact of running a surplus or a deficit depends on how that is achieved, where the money comes from.

It is extraordinary that so few financial commentators could not see a slow down in the Australian economy coming. And it still feels as though few are really prepared for what seems now like an unavoidable recession in Australia.

The appalling state of the current Labor government in the Polls and the ad nauseum commentary that the ‘Australian people’ have stopped listening is depressing for those hoping for a ‘new deal’ for the arts. What was being suggested might not have excited everyone but it was an important validation and impetus for important discussion. Will a Gillard government fighting for survival launch it now, as budgets and sleeze and controversy overwhelm it. How will ‘funding those grants-grabbing’ arty types play in vital electorates in Queensland and Western Australia? It’s all awful.

Or if they do release it, will it be little more than a hyperlink on a website that barely registers in people consciousness, that doesn’t ever get to live out its potential as it and other achievements and initiatives are wiped away by an incoming Abbott government?