Worst Budget Ever

The government’s most recent budget should anger not only those on left who value our welfare state and the Australian way of life, but also anyone who subscribes to the liberal values of Mill, Russell, Popper and Locke, economists, and Christian Democrats to boot.

There is merit to the government’s position that deficits are bad policy. They represent an intergenerational injustice, where the future must pay for the indulgences of the present. They constrain borrowing for productive investment, and they leave us with few options in time of crisis. But the way the present government has gone about rectifying our budget issue (to call it a crisis is a joke) is callous, stupid, short sighted and ineffective.

There are two factors driving Australia’s long term budget projections—the aging of the Australian population and the rebalancing of China’s economy. Neither of these trends was engineered by the Labor government, and the latest budget does next to nothing to address their negative impacts.

Ross Garnaut has noted in his latest book that the decline of China’s demand will cause a fall in the Australian dollar and a decline in our terms of trade. This could be an opportunity to become competitive again in manufacturing. But this will require productive investment and a deep structural adjustment. Connectivity must be improved. Port facilities must be expanded. Our education system must be reformed to ensure a steady flow of skilled manufacturing workers to high tech sectors. A manufacturing transition fund to assist workers in retraining to meet demand from emerging industries would also be useful, and a sensible policy in the wake of the demise of the car industry.

The government has done very little to address these issues. The extension of income contingent loans to TAFE and other trade related qualifications is welcome, but an inadequate policy if it exists in isolation from a broader program of industrial reform. The funding allocation to rail infrastructure is almost entirely re-announced existing funding. A new airport for Sydney is long overdue, but hardly a comprehensive economic plan or a help to manufacturing. New funding for roads is miniscule, but perhaps that is for the best given that no independent cost-benefit analysis, whether from the productivity commission or elsewhere, has suggested that roads are a wise investment.

There are a raft of reforms that would ease the burden of the aged on the budget without hurting the disadvantaged—almost none of them have been undertaken.  Pension reform is meek. Superannuation rorts have been left alone. Cost blow outs in medical treatment, most of which relate to expensive medical procedures rather than GP visits, have not been addressed, and rorts relating to private home equity remain.

Big ticket government expenses have not been abolished. Among other things, negative gearing continues to cost the government roughly $6billion dollars per annum while distorting the price of housing and driving owner-occupiers out of the market. The mining industry, one of our most profitable, continues to receive a fuel subsidy in excess of $4billion dollars a year. Untapped sources of equitable revenue are also being neglected. Superannuation remains grossly undertaxed. Reforms to the mining tax regime that could capture more of the gains from this inter-generationally iniquitous industry are being passed over. The government wants to abolish the lucrative Carbon Tax despite the improvements it makes to economic efficiency by allowing the market to determine the rate of consumption of carbon.

And what do we have instead of these sensible, fair changes? An all-out assault on the poor and vulnerable. Obvious notables include changes to unemployment benefits for the young that risk landing young people out on the street and driving them to crime. Worse, these changes undercut the fundamental mechanism of welfare state policy: when you are starting out, society helps you; once you’re set and earning a nice wage, you pay high taxes so that others might follow suit. What does the government hope to gain from this heartless change? Under 4 billion dollars over four years—less than the cost a single year’s fuel subsidy. GP co-payments are expected to raise revenues of $6billion over four years, less than a year’s worth of negative gearing. Less than a fraction of the cost of the new medical research fund, which addresses no existing unmet demand for funds. In exchange we see the departure of another of the fundamental pillars of Australia’s welfare system.

Let’s talk about foreign affairs for a minute. Australia’s strategic affairs community is largely in agreement about the need for fighter jets and submarines. These have been costed for some time and are an important aspect of any denial based defence policy—the only kind of policy feasible for us. But they are also in agreement that Australia’s best defence is the projection of soft power. Cultural policies and the economic and social development of our neighbours does more for curtailing animosity towards our nation than a squadron of jets ever could. No submarine can prevent a terrorist attack. Yet this government has annihilated the aid budget to pay for a program of refugee detention that has wreaked havoc on our international reputation, and is likely to destabilise Papua New Guinea. It has cut funding to the Australia Network, one of our most obvious soft power initiatives.

Abbott has talked big of the courage of this government. That’s bullshit. This was a cowardly budget. It places the burden of Australia’s budget correction on the backs of those least able to bear the load without addressing any of the long term structural drivers of our budget problems. This budget shows a complete lack of leadership, competence and compassion. It is thoroughly un-Australian and I sincerely hope it earns this government the boot.

The author blogs at markfabian.blogspot.com