In his 5pm press conference during this year’s budget lockup, Treasurer Josh Frydenberg described the budget as “our economic recovery plan”.
And a recovery plan during the pandemic that has ravaged economies around the world necessarily involves dealing with the huge current contraction in economic output, but must also look forward to what will make for a strong economy that can grow rapidly post-pandemic.
The budget gets an A-minus for addressing the current problems, but a somewhat lower grade for setting up the post-pandemic years. And in that regard, it is both a solid effort, and something of a disappointment.
In terms of plugging the economic hole brought about by the pandemic, the government has done the right thing, if perhaps not quite enough of the right thing.
The $101 billion to date spent on JobKeeper to support 3.5 million jobs, a massively expanded JobSeeker unemployment benefits program, and boosts to other income support measures are all very important and wise things to have done.
Bringing forward and boosting infrastructure spending by $14 billion, support for apprenticeships, and the so-called “loss carryback plan”, which allows businesses to offset current year loses against previous year’s taxes, are also smart moves.
The government acted quickly, early in the pandemic, to introduce many of these measures, and they have been supplemented and tweaked over time. There was relatively little that monetary policy could do given the ingoing low levels of interest rates — the main task of supporting the economy was left to fiscal policy.
Yet despite its size, JobKeeper — at its zenith — was only $1500 a fortnight, or less than half of average full-time weekly earnings. Income was supplemented, but certainly not replaced. Australia’s wage-replacement scheme — being at a flat rate — was much less generous and less supporting than schemes in the UK, the US and Europe.
What this sharp reduction in incomes ultimately means for delinquent rent and mortgage payments remains to be seen, with the potential for a wave of foreclosures and, in the extreme case, fire sales around the country.
But on the whole, the government has acted quickly and relatively effectively to deal with the problems of the pandemic.
The problems of tomorrow
As 2019 came to a close, not all was well with the Australian economy. GDP growth on a per capita basis — the only thing that really counts –had dropped into negative territory. In many ways our economic miracle of 29 years of uninterrupted growth was an immigration arbitrage. Real wages had been stagnant since 2013. Household debt was at astronomical levels –supported by a very frothy housing market.
The government argued that serious economic reforms were needed. And they were right. Yet the budget has done close to nothing to address those issues.
Industrial relations reform remains tied up in a bunch of working groups involving representatives from employer groups and unions — neither of whom are particularly representative of their constituencies.
Australia’s company tax rate has gone from one of the lowest in the OECD to one of the highest — no good thing for a capital-thirsty country like Australia. This budget does nothing to address that. Rather it provides some instant write-offs for businesses investing in capital equipment — a tactical move at best, when a strategic push is required.
And while there are bits and pieces for skills and training, there is no vision of how to provide young Australians with the skills they need to succeed in a world subject to the relentless forces of globalisation and automation –forces that the pandemic has only served to accelerate.
The budget brought forward the modest phase two personal income tax cuts that were already legislated to begin in July 2022, but the government did not bring forward the larger and more important phase three cuts that are still slated for 2024-25.
A box-ticking budget
Australia has done better on the public health and economic fronts than most other countries. Governments — state and federal — have acted decisively to deal with the spread of the virus, and to support the economy with strong fiscal measures.
Perhaps the federal government is exhausted. That would be understandable. But while this is a good budget for this year — and maybe next — it’s not a budget that deals with the considerable challenges facing the Australian economy, which were all too apparent before the pandemic.
That said, not all economic reform has to happen at budget time. Let us hope that calendar 2021 brings good news on the pandemic, and a renewed enthusiasm for reforming the Australian economy to deal with the considerable challenges we face in building another long period of economic growth and opportunity.