It is becoming evident that the budget repair task is essentially beyond the current Parliament. Expect the budget deficit to continue to drift, debt to continue to mount, and our credit rating to be downgraded. All this will become clearer with the May budget, due on May 9.
This week the government learned that the Senate would reject their so-called Omnibus Bill, built around a trimming of family tax benefits to fund a generous childcare package, with modest net savings, when Nick Xenophon withdrew the support of his Senate team. Even though the government had sought to ‘sweeten’ elements of this package from what was initially proposed in 2014, and then to ‘hypothecate’ the savings to fund the NDIS, this was still rejected.
The government had counted these savings in their budget figuring last May and again in the Mid-Year Economic and Fiscal Outlook update last December.
So, the government is now spelling out the obvious, namely that if expenditure savings are rejected, they will need to raise taxes to fix the budget. However, the Senate would probably also oppose any tax increases the government may propose. The opposition went on the attack, almost immediately, needling the government over which taxes they planned to increase.
The budget repair task is a very serious structural policy challenge, but neither side has ever really faced the reality of the task, neither its magnitude, nor urgency.
We have always been promised a quick and effective return to surplus, but it has only ever been ‘assumed’, by manipulating forecasts/predictions, rather than delivered, or deliverable.
The Abbott/Turnbull governments have been running the fiction that they could achieve budget repair solely by further expenditure restraint, while promising a $50billion unfunded cut in company tax. While the opposition opposes these cuts, at least for large businesses, they have been quite happy to count and commit to spend the $50billion that they know doesn’t actually exist.
While the opposition has offered some tax increases in relation to negative gearing and capital gains, they have maintained the fiction that the NDIS was ‘fully funded’. Both sides have also claimed the full funding of various infrastructure projects, including the NBN, as well as what they know will be exploding health, education and defence spending over the next several decades.
Basically, they assume that we will be able to ‘grow’ our way out of this mess, perhaps even on the back of another resources boom. While Trump may stimulate the US, and global, economies for a time, his economic strategy is unaffordable in the medium term, the unwinding of which could precipitate a world recession. The global economic and geo-political outlook is more dangerous and unpredictable than at any time since WWII.
Moreover, both sides argue that the national debt is manageable, but even with their ‘assumed’ surpluses going into the 2020s, of a billion or so per year, this is not going to contribute much to future debt reduction. We face the prospect of a significant national debt for decades, even on their most optimistic assumptions.
To hear our political leaders claim to be governing to benefit our children and grandchildren really grates, especially when they are actually ‘thieving’ from them, by leaving them the legacy of budget repair, debt service and repayment, and restricted availability and lower quality government services