Tonight the Federal Treasurer delivered his third budget and it was a disappointing effort. The worst line in his speech was “Best of all, the unemployment rate is expected to fall further from 5.3 per cent today to 4¾ per cent by mid-2012, around the level consistent with full employment”. So their aspirations are that low. There was also nonsensical statements about the government not being able to afford to “invest in skills, infrastructure, renewable energy and hospitals” unless new tax measures were found. There is also some stupid fiscal rules introduced which will not stand scrutiny if Europe melts down and a new crisis emerges. The following is a 550-word Op Ed commentary I wrote for the local Fairfax press. The word limit and the audience constrain what I have to say and how I said it.
At the height of the last boom, Australia was still wasting 9 per cent of our available workers (either unemployed or underemployed). While labour lay idle and essential public infrastructure decayed, the government extolled the virtues of its surpluses.
Today, 12.5 per cent of our willing labour resources are idle and GDP growth is not strong enough to eliminate this waste. Retail sales data suggests that households are saving to reduce their debt exposure.
Export volumes are growing but with export prices down the mining boom will not be sufficient. Rising interest rates are also dampening growth.
The Australian economy while better off than most is still fragile and in need of fiscal support.
Last night, the Treasurer decided to withdraw that support more quickly than previously expected. His judgement is wrong.
The earlier than expected return to surplus will be seen by most as demonstrating fiscal responsibility. But in fact, it is just pandering to the financial markets, which caused the crisis in the first place and are now busily undermining living standards in Europe.
National accounting shows us that a government surplus has to equal a non-government deficit, the latter manifesting as rising private indebtedness. The Government’s surplus mania reinstates the dynamics that created the global crisis – a reliance on increasing private debt to maintain economic growth in the face of government contraction.
Alternatively, we endure slower growth than required to generate enough jobs for all, as the private sector continues to increase its savings ratio and the government contracts.
So far from being responsible, the austerity that the Treasurer announced will prolong the waste of our labour potential.
The early return to surplus reflects an unexpected boom in tax revenue.
First, tax revenue rises and falls with economic activity. Budget deficits rise in recessions but fall when growth resumes. These automatic effects render the usual deficit hysteria meaningless.
Second, the government has introduced two major new taxes – the $12 billion Resource Super Profits Tax (RSPT) and a 25 per cent increase in tobacco taxes.
It also represents the imposition of a rigid spending rule which is so inflexible that it will prove impossible to maintain and is unnecessary anyway.
Commentators are misrepresenting the RSPT as an investment killer. In fact, it is a partial impost on excess mining profits after all the costs including a competitive return are deducted. It provides some public return to the non-renewable assets that belong to all of us.
The so-called infrastructure fund is unnecessary. The government can and should be spending now to build new infrastructure to modernise our productive capacity.
Good points? The investment in more apprenticeships is excellent as is the increased funding for regional health and aged care services. Given the aged-care crisis in the Hunter these moves are welcome.
But the main “health” reforms are uncertain given the failure to reach agreement with the states.
With an election looming and the government looking vulnerable, some enticements might have been expected. But the “boring” budget reflects the current suspicion about the government’s track record on spending. They are instead hoping that the misperceptions they have peddled about the need to get the budget into surplus are believed.
Overall score: 4/10 – too much emphasis on the surplus and not enough emphasis on jobs and living standards.