Tuesday, 3 June 2014

This is a Budget built on a trifecta of trickery to justify smashing large holes in the social safety net that the Government promised it wouldn’t do for three years prior to the election.

The first trick is that to justify its savagery it has claimed that Australia faces an economic crisis. A claim that is laughable in an economy that has grown 16 per cent since the end of 2007 and, come the release of the March Quarter National Accounts tomorrow, will most likely have grown at trend over the last six months, making our economy more than 16 per cent larger than it was at the end of 2007.

That doesn’t sound like an economic emergency: 16 per cent growth over seven and a half years despite the great recession. A performance not matched by any other developed economy.

The second trick is to falsely claim that spending in Australia has been and will be in the future massively out of control. If you accept the Abbott Government’s pessimistic economic forecasts, Government spending will average 24.9 per cent of GDP over the four years to 2017-18.

In the last three years of the Labor Government, spending averaged 24.6 per cent of GDP. So, the Abbott Government is planning to spend more than the average of the last three years of the Labor Government in every year of the forward estimates. And this is despite the savage cuts which are clearly only making way for their questionable new and additional spending on things like the Paid Parental Leave Scheme.

The third trick is to irresponsibly claim that debt levels are large, unsustainable and rapidly deteriorating through this decade. This claim is damaging our standing in international financial markets. It is completely inconsistent with our AAA credit rating and is not backed up by any analysis from financial institutions or credible private sector forecasts.

In fact, net debt over the forward estimates in this budget is higher than any year forecast in the Pre-Election Fiscal Outlook, which was prepared independently by Treasury and the Department of Finance.

This trifecta of trickery is used to back up its claim that its decisions are fair and that the pain, given the size of the problem, is unavoidable.

How can the Government claim an economic emergency given these facts? Although I would note that the Prime Minister partly walked away from this in the house last Monday week when he said ‘our economy is strong but the Budget is weak,’ whatever that means in his Tea Party universe.

To justify its position, the Government loves to claim IMF endorsement for these assertions, something I believe they do not have.

The IMF has repeatedly made the point that the Australian economy has performed well over recent years and our public finances are in good shape.

The purpose of their lie about a supportive IMF is to try to use international institutions to discredit the actions our Labor Government took during the Global Financial Crisis to incur modest levels of debt, which in turn, saved Australia from recession.

Actions which then were and still now are strongly supported by the IMF and the OECD and the G20. What Abbott is really up to is trying to set the scene for a dramatic shrinkage of government in Australia.

To do that he wants to delegitimise the role that our Labor Government played in using stimulus to save Australia from recession.

Listen to them in the House any day as they demonise the debt we incurred during this period as being the consequence of wasteful spending. It was mostly the consequence of a rapid decline in revenues, which are only now coming back to more normal levels.

Had we not borrowed during that period to make up for the revenue shortfall Australia would have experienced much higher levels of unemployment and small business destruction, themselves leading to higher levels of deficit and debt.

But in the post-fact world of the Abbott Government, a Global Financial Crisis didn’t really impact on Australia and if there was one it was caused by governments not by rapacious and out of control international financial markets. The Davos audience cringed with embarrassment when the Prime Minister made this claim in January this year.

Over the last couple of months the Treasurer, the Prime Minister and other Ministers have been purporting to use IMF data to back up the last two claims in their trifecta of tricks, namely out of control spending and out of control debt.

The task of holding the Government accountable for its outrageous exaggerations is made much more difficult by the chaotic presentation of this year’s budget papers which appear to have been stuck together at the last minute with a bit of clag glue.

Supporting analysis of economic trends and budget impacts evident in previous budget papers is entirely missing and the outcome is a budget paper about half the length of a normal budget paper presented in recent years.

Nevertheless spending in this budget from the Abbott Government will be more than the average of the last three years of the Labor Government in every year of its forward estimates.

What doesn’t stand out in the Budget Papers clearly is that for a budget supposedly intent on paying down debt, barely any of the short-term saves in the budget have gone towards paying down debt at all.

Instead these new savings have been used to plug the $28 billion dollar revenue hole left by the abolition of the mining tax, carbon price and the removal of measures to stop multi-national profit shifting, and a whole bunch of other kick-backs to the top end of town.

They have also used some of these savings to fund new Coalition election promises.

So the Budget fails to put its money where its mouth is and pay down any significant amount of debt. Deficits are not significantly different than they were in the Pre-Election Fiscal Statement when we left office. And stunningly net debt has not gone down; it’s gone up from 12.5 per cent in September last year to 14 per cent in September 2017-18.

In my view, the real GDP forecasts and nominal GDP forecasts on which Budget outcomes are predicated are in fact government forecasts not Treasury forecasts and are deliberately pessimistic.

The nominal GDP forecasts upon which the revenue figures are based are significantly below trend and therefore revenue forecasts are likely to be exceeded in future years.

In practical terms what does this mean? The Government has deliberately depressed its revenue forecasts to give itself the headspace to upgrade its revenue forecasts in the years ahead. This gives them the flexibility to come back to surplus earlier and to set the scene to cynically deliver tax cuts to people before the election.

So the truth is, the deficits as forecast are modest, their growth forecasts are very conservative and designed to pull a tax rabbit out of the hat in a couple of years’ time. In the face of these outcomes the Government has been desperate to deflect attention by exaggerating future levels of deficit and debt.

Their latest trick had been to misuse IMF data on spending, deficit and debt to justify their savage cuts by brazenly using the respectability and credibility that body brings to the public debate.

Claim number one is that among IMF advanced countries, Australia had the second-highest real expenditure growth per person between 2005 and 2010. That is not true. Australia is around the middle of the pack.

The second claim is that Australia’s rate of fiscal consolidation is only modest when compared to other advanced countries. That is not true. Australia is around the middle of the pack. Between 2012-2018 it’s around 2 per cent of GDP, just marginally above the average for IMF countries.

The third claim is that Australia had the highest real increases in forecast real expenditure growth between 2012 and 2018 for IMF advanced economies. That is also not true.

Then the clanger of them all, that our debt levels are unsustainable and out of control. Our rate of increase between 2012-2018 is lower than a number of advanced economies and in 2018 Australia’s net debt is forecast to still be amongst the lowest of all advanced economies. In 2018, our gross debt is forecast to be the sixth lowest out of 35 advanced IMF economies.

The purpose of this trifecta of trickery and the trash talking of our current and future economic prospects is ideological, to help them wriggle out of their clear commitments of no cuts to education, no cuts to health, no change to pensions, no change to GST and no cuts to ABC or SBS.

In addition to its savagery to low income earners, in particular Age Pensioners, a less publicized consequence is the intergenerational warfare I believe is being waged against younger Australians. The cuts to Newstart for under 30s, the deregulation of university fees and higher HECS debts for university students help point to this.

But I call it intergenerational warfare because of the impact this Budget will have on these younger Australians for the decades to come. In broader budget policy context, it’s these people who are now under 35 who will be the first to wear the burden of changes like the rise in the pension age to 70, for example.

But what’s most troubling of all is that the Government’s megaphone trash talking of the economy is having real consequences at home and abroad. Now I think the Australian economy has a huge future and I hope we extend on the unprecedented 23 years of uninterrupted growth, but the mismanagement by this Government is putting this all at risk.

We have already seen the impact on consumer confidence and are starting to see that flow through to house prices and building approvals, both strongly linked to people’s confidence in the future.

This comes on top of slowing business investment, which is critical to building long term capacity and growth in our economy. When you combine this with the attack on investment in education, this budget is proving a real risk to our economic future on every front.

And most alarmingly was the Treasurer’s incompetent answer in the house last week [even by his standards] about the impact on our economy of our low levels of debt. He claimed we “weren’t living within our means”. What he didn’t say was that Australia’s savings rate was around the OECD average but our investment rate was well above it.

So it is our attractiveness as an investment destination that is driving the CAD, not a lack of savings by international standards. He is entirely ignorant that Australia is a prosperous country because we borrow modestly to invest in the future of our nation, and have done so for over 100 years.

When he makes silly statements like this he demonstrates to international markets a lack of confidence and competence in the management of our $1.5 trillion economy.

In Labor’s last budget we put in place funding over 10 years for two of the most important social and economic reforms of the post-war era – namely the National Disability Insurance Scheme and the Gonski school improvement reforms.

The fear mongering we’ve seen from Tony Abbott and Joe Hockey is designed to pursue a political objective of junking key election commitments as an entrée to dismantling the Australian model, one which is built on fairness.

Good Budget policy is the foundation of a strong economy. And a credible pathway to surplus is an essential ingredient to achieving all of our social and economic obligations. The clumsy trickery of this Budget is less about a return to surplus, and more about abolishing key initiatives that they promised to keep in the election campaign.