Rabbits, hats and a poke in the eye
It is bad enough that the 2016-17 Budget contained so little of substance. Still worse is what it tells us about the approach to public policy of our political class. Thomas Gray said it all: ‘Alas, regardless of their doom / The little victims play! / No sense have they of ills to come, / Nor care beyond today.’
In 2016-17 the Commonwealth net debt to GDP ratio is forecast to be the highest since 1970-71 (as far back as the budget papers data go). It will vault past the Keating government’s 1995-96 peak, which followed a recession with unemployment exceeding 11 per cent. This despite our not having had any recent recession, and a 5.5 per cent forecast unemployment rate.
2016-17 will also see our ninth successive budget deficit, with three more projected. Since 1970-71 we have never run more than seven consecutive deficits, despite the early 1980s and 1990s recessions. The six straight deficits under Whitlam-Fraser averaged 1.3 per cent of GDP; the five under Fraser-Hawke, 2.1 per cent of GDP; and the seven under Hawke-Keating-Howard, 2.5 per cent of GDP. Yet, despite no recession and a huge mining boom-induced boost to national income, our nine deficits so far (even after allowance for Future Fund earnings) will have also averaged 2.5 per cent of GDP.
Bad as they are, those figures exclude the massive current spending ‘off-budget’ on the Rudd-Gillard-Turnbull National Broadband Network, and on subsidised loans to churn tens of thousands each year through worthless tertiary ‘education’ courses. With these payments included, the 2016-17 headline cash balance forecast (negative $53.4 billion) is a full percentage point of GDP higher again.
So how have our politicians, and commentariat, responded to this alarming situation? Are government and opposition competing to identify expenditure cuts in pursuit of fiscal responsibility? Are journalists lambasting our reckless spending – with government payments now projected above 25 per cent of GDP for seven successive years? With a couple of honourable exceptions, most journalists seem barely able to muster even perfunctory concern. As for the government, the Budget papers make it clear that, within its first term, it has now simply given up. The Budget contains billions in extra spending for badly run State hospitals, inefficient State schools, the Clean Energy Finance Corporation (aka the ‘Bob Brown Bank’) and the global warming myth-ridden Australian Renewable Energy Agency. The ABC and SBS even receive $55 million extra to continue their relentless demonisation of the Coalition!
To complete a classic Labor budget, this extra spending is chiefly ‘funded’ through hitting higher income earners’ superannuation, undermining any claim to represent people trying to provide for their own retirement rather than expecting taxpayers to do so.
Incredibly, Turnbull and Treasurer Scott Morrison boast that their policy decisions contribute $1.7 billion to the budget bottom line over four years (0.09 per cent of government spending over that period). Think of a family far outspending its income and boasting that, to address the problem, mum and dad will each give up one take away coffee a month.
Yet even that ‘saving’ is entirely back-loaded – policy decisions actually worsen the budget by $4.2 billion over the first three years – and would vanish but for the government’s new Tax Avoidance Taskforce magician. By 2019-20, this magician is to produce $1.6 billion a year of revenue rabbits from a mere $200 million hat of additional Australian Tax Office funding. But if $8 return can so easily be generated for each extra dollar spent on improved ‘compliance’, why stop at $200 million? A few billion more for the ATO could surely erase the deficit altogether.
With fiscal repair abandoned, did the Budget at least contain some substantive economic reforms? In only two areas, superannuation and company tax, does it even pretend to do so. On superannuation, some sensible reforms are outweighed by other ill-conceived ones. The upshot is a package that undermines the system’s core goal, to promote self-reliance in old age; and that, by adding to earlier such raids, further attacks the system’s essential requirement, policy certainty.
As for company tax, the government’s claim to be cutting the rate to 25 per cent is laughable. The proposed phase-in is so glacial that larger companies won’t see any reduction for seven years, and the 25 per cent rate not until three years after that. Grandstanding about policy commitments ten years away was a hallmark of Kevin Rudd, to whom Malcolm Turnbull bears striking similarities, and is utterly destructive of policy and fiscal discipline. Such ‘commitments’, to which Labor under Bill Shorten and Chris Bowen is equally prone, should be treated as the empty boasts they are. No company will make a single business decision on the airy promise of what might happen by 2026-27. All that matters is what the government will actually do in the next year or two – namely, a further 1 percentage point cut in the company tax rate for very small businesses, gradually extended to include some medium sized ones. Better than a poke in the eye with a sharp stick but, as Budget Paper 2 costings show, much smaller even than the small business tax cuts provided by the Abbott government a year ago.
This is what Morrison and Turnbull puff up as an ‘Economic Plan’ – one for which, presumably, they think it was worth betraying a Prime Minister. The depressing truth – from one who was never a fan of Joe Hockey as Treasurer – is that in the past eight years there has only been one serious (albeit badly managed) attempt to address Australia’s structural budget problems – the 2014-15 Budget. Labor, the Greens, and now also the Coalition may pretend these problems don’t exist, but (as the stirrings among the ratings agencies are beginning to indicate) reality will soon force them to admit otherwise.