The Liberal Democratic Party released its alternative budget today in the Fin, amid about as much fanfare as the alternative Tea Party version of the annual State of the Union address and with as little impact. Among the highlights:
- A ridiculous application of the discredited Laffer curve theory with the assumption that cutting the top marginal tax rate to 33% would mean only a $3B hit to government revenues but would add over 1% to GDP growth;
- An unsupportable application of a flawed study by Andrew Leigh (since comprehensively debunked on scientific grounds) to claim that freezing the minimum wage would lead to the creation of 100,000 or more low-paid jobs;
- A laughably bare assertion that the government can arbitrarily cut public sector wages by 10% without incident;
- No modelling of the effects on domestic demand of such massive changes as adding the family home to the pension asset test, or reducing multi-billion dollar subsidies for education and R&D overnight, among other changes amounting to cutting public sector spending by 10%.
If anyone thought that the LDP was ready to govern with a coherent set of economic policies, think again. I have sympathy for the message of attacking rentseekers, but you can't assume away the removal of around 3% of domestic consumption and hope that magical pink unicorns will somehow descend from the nearest cloudbank to fart out enough demand rainbows to make up the inevitable shortfall in government revenue.
I realise this is just an intellectual exercise and it's better than most other minor parties are prepared to do, but if you're going to go to the trouble of preparing an actual Budget then you should show some semblance of connection with economic reality. There are ways to do these things without dropping the country into its first recession for over two decades.