Economy

Dec 20, 2016

Keane: more like MYEFOMG

After years of deficit spending and record low interest rates, the Coalition still can't get the economy out of second gear.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

Scott Morrison's second Mid Year Economic and Fiscal Outlook is his least worst policy document yet, but illustrates the deep hole the Abbott and Turnbull governments have led both the nation's finances and the broader economy. There are some poor decisions in there – Joe Hockey’s Asset Recycling Fund was his best contribution to public policy in his career, and deserved to continue; the welfare measures that will yield $2 billion over forward estimates are the amazing 100th crackdown in this area under all governments since 1985; instead of directing infrastructure funding to projects that will yield genuine economic value, unallocated funding will be directed to the Coalition’s regional boondoggles announced during the election campaign; and the Australian Federal Police will get still more funding -- $60 million – for security theatre. But there are also some “quality saves”, to use a phrase of yore: the Green Army has met its Cannae and a richly deserved end it is, too -- the only shame is that its counterpart in Coalition climate crap, the emissions reduction fund, wasn’t junked as well. There’s another chiseling away of middle-class welfare via Family Tax Benefit A, the VET-HELP reforms are overdue and should produce both savings and a better vocational training sector, and a business welfare program has been cut. Morrison also deserves credit for refusing to bank the recent rise in commodity prices across forward estimates. Even so, there’s an element of fakery to the numbers. In particular, the most impressive feature of the document -- the cut in government spending as a proportion of GDP from 25.8% to 25.2% this year and in coming years -- reflects not hard-earned savings but more than $10 billion worth of adjustments to demand-driven programs in childcare and aged income support. Programs like these are “demand driven” in the sense that if people qualify for them, they get paid -- there’s no cap or limit. Instead, the relevant departments and the Department of Finance have to estimate how many people will access the program and budget for that -- if a program gets overused, the government has to find the money from somewhere; if the estimate is too high, the government saves money. In this case, the government has decided that previous calculations about childcare and the Income Support for Seniors programs have overstated demand, and the budget has been adjusted downward by $11-odd billion over forward estimates. It’s legit, but a little convenient -- and if the new estimates prove undercooked, only the fiscal nerds who bother to check the Final Budget Outcome and subsequent budgets will spot it. Despite that notional windfall, the overall deficit situation has deteriorated yet again, even though this year comes out $600 million better after all the toing and froing. But compare Joe Hockey’s 2014 budget, which predicted a return to surplus in 2017-18 -- that’s next year -- with yesterday’s document, in which you won't get much change from a deficit of $30 billion, there's $95 billion worth of deficit over the coming four years and a virtually non-existent surplus in the year beyond that. The villain, as always, is revenue write-downs -- on which the government deserves exactly the amount of common sense understanding that the Coalition gave Wayne Swan when he kept having to postpone the return to surplus, zero. That's especially the case given Hockey and Mathias Cormann swore repeatedly the days of revenue write-downs were over once the adults were back in charge in 2014. And especially given the Coalition has long called for, and sought via industrial relations laws to achieve, downward pressure on workers’ wages in favour of employers. Now they’ve got all the “wage restraint” they can eat, and their budget is choking on it. While the focus in the last 24 hours has been on whether the ratings agencies -- suddenly restored to apparent credibility despite their unpunished culpability for the financial crisis -- will downgrade Australia’s rating, thereby establishing that the Coalition has undone the hard fiscal work of Swan, there’s a broader point here. Interest rates have been at record lows for several years, and the Coalition, despite the surpluses apparently present in their DNA, have pumped $114 billion in deficit spending into the economy since coming to office -- not including the extra tens of billions they loaded into 2013-14 and blamed on Labor -- and the economy has struggled to get out of second gear. In fact, it just went backwards in the September quarter. Abbott and Turnbull have run a sustained deficit of well over 2% of GDP, year in and year out, hand-in-glove with an extraordinarily easy monetary policy, without managing to get the economy consistently performing at trend. It's not just a poor record for the allegedly superior economic managers, it's an alarming one for Australia.

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8 comments

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8 thoughts on “Keane: more like MYEFOMG

  1. Lee Tinson

    Nailed it, Bernard! Couldn’t agree more. What a bunch of shysters.

    We notice, however, that their donor base will not be suffering from any of this. So they’ve achieved their real (not the same as stated) objectives at the expense of the rest of the nation.

    1. shea mcduff

      “We notice, however, that their donor base will not be suffering from any of this. So they’ve achieved their real (not the same as stated) objectives at the expense of the rest of the nation.”

      Bears repeating.
      Frequently.

  2. klewso

    “Dear Santa,
    For Xmas I want a Voodoo Economics Chemistry Set, my very own history book of facts, a magical abacus, a handful of magic beans, a brain like Tinman, a heart like the Scarecrow, Lion’s whiskers and an Invisible Ink Bottom Liner.
    Signed Scrott Morrison – Grade 6
    …. PS, and a gullible Oz.”

  3. bushby jane

    Hockey’s asset recycling fund is the one where Victoria should have got a heap of money for selling the port of Melbourne, isn’t it? And didn’t.
    What are they spending all that money on, apart from AFP theatre? Is it more of the same, like trying to find mh370, and survivors of mh17? It’s not looking after lower socio economic needs, all they keep doing is cutting back in these areas like they don’t have other choices. There are plenty, but they would affect themselves and we can’t have that.

  4. Murray Scott

    Unenthusiastic as I am about Scomo’s values, I fear that we Lefties have as much of a problem as he does. Sure, like Swan, we could heroically reinflate the economy with temporarily bigger deficits but according to the rules we would have to pay it back. The Left, like Scomo would for that depend on Economic Growth, riding cavalry-like to the rescue and bury the debt. Ok perhaps for a short term recovery from a massive hit like the GFC but how long do we depend on such Growth continuing? Can anybody point to a form of continuing gtowth that does not involve increasing resource use (including energy) and material waste generation (including Greenhouse Gasses)? The ehterial arts use concert halls, galleries and sculpture materials, the sciences depend on hideously expensive laboratories even poets depend on alcoholic beverages and pens. I don’t believe in perpetual exponential growth of anything on a finite planet. What was that I read about “Quantitative Easing” to inflate the economy (up to a point) without incurring debt?

    1. Lee Tinson

      I was going to make the point that economic growth is just one model. Ultimately it will destroy us all if we keep on doing it. It only exists because more people want more stuff, basically. And we can’t stop it while ever the psychopaths who run large corporations are focused on profit GROWTH rather than just profit. It’s all such a waste of time and effort (sigh!).

  5. AR

    Morriscum, currently, has the job of sitting of the garbage can lid presumably because he wanted it – clearly not for any expertise he may claim, even though we know how untrue are his usual mewlings.
    “Go for Growth”, “Jobs, Jobs, Jobs!”, “Expand, Increase, More Toys”. ..
    “Multiply and Replenish the Earth…” oops, no.., sorry that was what Moses thought he heard when trying to get the flood waters out of his ears.

  6. Goran Ocic

    Scott no friends, he’s deeply out of his depth should be wearing L plates, trashing the economy, but hey 4 years on you can always blame labour for your incompetence.

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