Features Australia

He go crazy: Josh hands down his Budget

How to make even Wayne Swan look prudent and responsible

22 May 2021

9:00 AM

22 May 2021

9:00 AM

It’s always easy to parody the most stupid bits of a budget – like spending $12 million on the Matildas, the female football team, or $40 million on regional drones. In the past, I became quite fixated by the federal taxpayer stumping up for lights at the Manuka Oval and the millions handed over to promoting Muslim participation in Aussie rules football.

But in many ways, this is to miss the main game. Vote-chasing politicians will always do stupid things with our tax dollars. But the real issue is the size of the overall spend and the quality of the spend.

I’d probably put up with the odd example of ridiculous government waste if the people in charge were mainly acting as tough-minded custodians of other people’s money. The real tragedy is that the Morrison government is now overrun by would-be Santas, led by Treasurer Josh Frydenberg (with the obvious backing of the PrimeMinister).

To quote that eminent commentator, Manuel of Fawlty Towers fame, ‘He go crazy’.

Maybe Frydenberg could be forgiven some of the massive overspend last year by virtue of the uncertainty arising from Covid, although the adverse economic effects were almost universally the result of government-mandated restrictions.

In 2020-21, federal government spending increased by over 18 per cent and spending as a proportion topped out at close to a third of GDP. This makes Whitlam look like a pussy cat and Wayne Swan a lion cub.

Now any normal – that is, not crazy – treasurer would wipe their furrowed brow and think that fiscal repair must be the driving principle this year. After all, government net debt increased by $127 billion in just one year and net debt as a proportion of GDP went from 24.7 per cent in 2019-20 to 30 per cent the next year.

We must put the brakes on, cut back as much as possible and begin to pay off the accumulated debt.

But the boffins – or should that be inmates? – in Treasury had other ideas. Their advice to the man happily wearing the red suit was to keep spending like crazy (geddit?) and to hang the implications for national indebtedness.

The key sentence in the Budget paper is this: ‘low yields, together with strong economic growth, mean the government can reduce the debt to GDP ratio without running a surplus.’ That’s right, put the grocery bill on the credit card and as long as interest rates stay low (very low), all will be fine.

So what could possibly go wrong? The answer is plenty, including the following distinct possibilities: rising yields on government debt; Australia losing its AAA credit rating and possibly being marked down on a number of occasions; foreigners unwilling to take up new government debt issuance; and economic growth being much lower than anticipated, even negative.

But none of this seems to be factored into this year’s Budget thinking. In 2021-22, spending will increase by a further 13 per cent and payments as a percentage of GDP are expected to come in at 27.6 per cent of GDP. Even at his peak, Labor’s treasurer, Wayne Swan, only managed spending of 25.9 per cent of GDP.

But here’s the real rub: the federal government is not expecting to deliver a Budget surplus in any year up to 2031-32. That will make for a quarter of a century of negative cash balances save for one year when there was close to break-even. Those ‘Back in Black’ mugs ordered by Frydenberg in 2019 are quickly assuming collector status.

So what are the really big licks of government spending? Aged care spending increases by a massive $17.7 billion over five years, from a base of around $25 billion per year. Using a lopsided royal commission to establish policy – never a good idea at the best of times – the sector will now be showered with money in a way that will mainly lead to providers putting their prices up.

And it’s all very well talking about an extra 80,000 home-care packages but there is no consideration given to where the workers will come from. To be sure, there’s the usual stuff about more money for training. But somehow I don’t think those jumped-up, ill-informed school careers advisers are suggesting that school leavers head towards aged care.

Here’s the thing about government funding of all these ‘essential’ services: unless most users actually contribute some of their own money, what is served up will be what suits the providers. And top-down regulation and random audits won’t do a lot to the day-to-day experience of the clients.

Take the home-care packages. Only seven per cent of the costs are recovered from clients and yet many of them are well-off and have substantial assets. One minute an older person is up for their care needs, the next the taxpayer is picking up close to the full tab.

It’s not just that this is financially irresponsible in terms of the use of taxpayer money but it also deprives the recipients of any real leverage when it comes to receiving the services they most prefer. It tends to be a one size fits all, take it or leave it arrangement.

There is also an additional $14.4 billion for the open-ended National Disability Insurance Scheme, which of course is not an insurance scheme at all. It was always predicted that this scheme would blow out because of the strong incentives for people (and people’s children) to qualify and the difficulty of restricting this process.

So not only is the average size of the assistance packages blowing out, the number of people who qualify for the scheme is also nearly half again on top of the original estimates of the Productivity Commission.

Politically sensitive as it may be, a responsible federal government would be acting now to rein in the expenditure on the NDIS, if only to protect those most in need down the track. The government’s recent actions have been very timid, to say the least.

And here’s another tip from the recent budget: when the government starts talking about investing rather than spending, be very afraid. For one thing, this type of investment doesn’t generate a return. And secondly, investment is basically impossible to cut back – well, because it’s investment.

Labor preferred investment over spending. Now there’s a joint ticket with the Coalition.

So crazy Josh has let the genie out of the fiscal bottle. Just don’t expect anyone to put her back any time soon.

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