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.