If one of the key questions about the 2020 budget was whether the government was prepared to spend enough to support the economy, it was answered resolutely in the affirmative in Table 1 of Statement 1 of Budget Paper No. 1 which showed deficits totalling $480 billion stretching off to 2024.
The Grattan Institute had suggested the government needed to spend another $70 billion to $90 billion in 2021 and 2022 on top of its $180 billion in deficit spending already committed this year. Josh Frydenberg went way beyond that with another $112 billion deficit next year and deficits to the end of the forward estimates and then beyond into the forecasting haze of the late 2020s.
And the deficits aren’t just the result of lower tax revenue — despite justified criticisms that revenue forecasts still look too optimistic — but a massive expansion in the size of government.
But the other budget question is whether the spending will be effective and fair, to which the answer is not particularly, and no.
The strategy is a private sector recovery — driven by private spending by households, and business investment and hiring. The former will be funded by tax cuts that mostly go to high- and middle-income earners; the latter by a massive investment write-off allowance, retrospective tax losses and hiring subsidies.
The investment write-off, a monster version of the plan Labor took to the last election, will provide a necessary boost to business investment which deteriorated last year and fell into a deep hole this year — even if it merely brings forward a lot of spending that otherwise might have occurred in the next couple of years.
Something has to get business spending, and short of a miracle cure for COVID-19 this is about the best the government can do.
The income tax cuts, though, will achieve far less in terms of stimulus — especially if the virus remains a persistent threat that deters many consumers and workers from resuming normal activities, or what we used to think were normal activities in the world before the pandemic.
Many of us will save them, or pay down the mortgage faster, until we’re more confident that the economy is sound. Because the biggest cuts go to middle- and high-income earners that propensity to save will be particularly strong.
That might be OK if there were other forms of stimulus for household spending. The most effective form of stimulus, income support for welfare recipients, is limited to two small one-off payments. JobSeeker will — at least at this stage — still revert to its shameful pre-COVID level in January, against the advice of pretty much everyone across the political spectrum and even many within the government’s ranks.
The other no-brainer stimulus measure, funding for social housing, is also missing entirely. There is $2 billion for small-scale capital works and local infrastructure that — provided it doesn’t fall victim to the Morrison syndrome of being announced but never spent — should be spent quickly on roads across the country. That won’t provide much help for the residential construction sector.
And another easy win, greater and better funding for residential aged care — which would have supported the low-income earners working in that sector while addressing Australia’s greatest public policy scandal after climate inaction — has been kicked down the road. That’s despite the aged care royal commission urging the adoption of minimum staff ratios.
The targets of stimulus spending reflect a strong ideological bent — or, at least, a clutch of conservative clichés. It’s not government’s money, it’s taxpayers’ money. The best form of welfare is a job. We’ll never tell people how to spend their own money. We need a business-led recovery.
Except businesses and households won’t spend without confidence. And if the best form of welfare is a job, why are the hiring subsidies skewed to under-35s? What happens to older unemployed people?
Most of all, it’s not taxpayers’ money or the government’s money. It’s borrowings, eventually $1 trillion-plus. The Coalition has long made a virtue of increasing the tax burden on Australians and then theatrically handing a small chunk of that back as tax cuts in order to demonstrate its economic management. Now there’s nothing to hand back.
Every cent of the tax cuts, which will be permanent rather than “targeted and temporary”, is funded with borrowings for years to come, with budget deficits still at nearly 2% of GDP as the 2030s dawn.
The result is a weird ideological mutant. The budget is a Frankenstein’s monster stitching together Keynesian stimulus with a neoliberal obsession with individual and corporate self-interest. We’re in a world of Prometheus Untaxed, a colossal expansion in the size of government to drive individual and corporate spending, one that leaves many of our most vulnerable behind.
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