Listening to the treasurer’s budget speech, I thought that maybe this is the way modern Australia is—fat, flaccid, and foolish—and I just have to accept it.
Fat?
Well, treasury coffers have been swollen by terms of trade which are possibly the best in a hundred years, possibly even since the gold rushes that made “marvellous” Melbourne, briefly, the richest city in the world.
And we seem content as a nation to live off it.
This graph shows how our mineral wealth has given us a period of extraordinary wealth. It started in 2004, but it rose another notch just after COVID.
You might call the last rise the “Ukraine dividend,” because that war is what forced the price of internationally traded commodities like iron, coal, gas, and oil up to historically high levels and produced that flick in the tail of our terms of trade.
As a commodity economy, we have benefited, and the treasurer is spending the bounty provided by resource company tax receipts faster than we can grow the economy.
As a commodity economy, we should also know that these sorts of crises eventually go away, and with them the surplus cash.
Goodies for Everyone
The treasurer’s speech also read like a smorgasbord of goodies.As he said, “everyone’s a winner,” or more accurately it “delivers for every Australian.”
Yes, in the way Woollies or Coles will home deliver your meals.
“Sit back and let government services look after everything in your life for you,” he means, rather than “This will set you up as a self-reliant individual so you can deliver for yourself.”
There are subsidies to deaden the pain of electricity prices, tax cuts for everyone (even bigger than the Coalition Stage III tax cuts, so he boasts), cheaper pharmaceuticals, less student debt, more rent assistance, more homes, and more transport links.
There’s $13.7 billion for billionaires to develop green hydrogen and critical minerals projects. Workers in child and aged care will be paid more, there’s money for rural communities and climate change, and money for nursing homes.
I only heard one savings measure, and that was $14 billion over four years from the NDIS. But then, that’s an estimate of fraud and overservicing, let’s see how that really goes. And anyway, it is much less than the projected growth in the NDIS.
No doubt all these are deserving causes, but then there’s very rarely a cause that is undeserving, although many are unaffordable.
And Government Keeps Growing
Since 1982 government expenditure has tended to fluctuate, but with a floor of around 23 percent of GDP.That was until around 2008, the first year of the Rudd Labor government. Then government spending peaked at 25.9 percent of GDP in 2010, but was brought back to 23.9 percent in 2018.
COVID-19 broke the paradigm with government expenditure peaking at 31.6 percent of GDP. That is the cause of our current inflation, and that expenditure needed to be pulled back down until it hits 23 percent, or even less.
Instead, this budget cements 26 percent of GDP or higher as the low end of government.
That is funded by government debt with net debt increasing from 20 percent of GDP this financial year, to 21.9 percent by the end of the forward estimates, while interest expenses increase from 0.5 percent of GDP, to 0.8 percent—up 60 percent.
The treasurer may claim to be fighting inflation by paying us not to notice the increase in our electricity bills, but until he gets spending and debt going in opposite directions, it is a con.
Can We Grow the Economic Pie? Unlikely
There is a relatively painless way to get out of this predicament, but that is where “flaccid” comes into play. That painless way is to grow the economy faster than expenditure. It’s how Robert Menzies paid off the massive debt of WWII.That requires an economy that is tough and resilient, not one where workers think the government can sort everything out for them and all they have to do is cash the cheques.
Yet we’ve gone in the other direction with the government increasingly interfering and directing.
We have an industrial relations system that has been pushed back to the 50s.
Our power prices are inexorably increasing as hobby forms of energy like wind and solar are tortured to provide grid-scale supply.
The government is interfering in the price setting system, and regulations are being used to strangle developments.
The Fair Work Commission, under government pressure, is increasing wages without concern for productivity.
Won’t Be Fooled Again?
And that brings us to foolish.I’ve seen a few budgets, and the applause from the treasurer’s colleagues seemed muted.
I don’t think the government is foolish enough to believe that this budget can deliver on any of the promises it makes, so they are unenthusiastic.
Looking at the body language, I also don’t think they have a lot of enthusiasm for the treasurer. As they walked down the corridors of power he trailed behind Finance Minister Katy Gallagher.
I wouldn’t be surprised if she fancies herself in the job. And in a government that boasts about being more than 50 percent female, why should a man hold the second most important job in the government when a man has the most important one?
(Although it is the job of a finance minister to rein in expenditure, so this is an argument based on DEI principles rather than obvious merit).
Whether the government is foolish or not, it has its money on us being fooled by all the rhetoric of changed circumstances requiring new economic strategies, and voila, here are new strategies.
(Really reheated ones from aeons ago that have been proven not to work, but in the treasurer’s world everything old can be new again).
This was very much a budget with its eye on an election, possibly in March or April next year, because it hasn’t left much room for a second election budget.
For this strategy to be a winner, they need interest rates to be falling, as this is the biggest factor affecting the cost of living mood, so they’re also hoping they can fool the Reserve Bank into accepting that subsidising prices has a material effect on inflation.
They also need to get in before it is obvious that promising to spend money to fix something is one thing, but actually fixing it is another. We know how many houses they say they are building, for example, but that doesn’t fit with the number that have actually been built.
The treasurer was right when he said we face “fraught and fragile” conditions. But if he really believed that, this was not the budget to deliver.
