NOBODY can spend what they don’t have or what they can’t afford to borrow and repay — and, in the long run, that’s no less true for governments than it is for individuals, households and businesses.
As anyone who’s ever run up their credit card or neglected to pay the phone bill soon enough finds out, living beyond your means has consequences.
When governments consistently spend more than they raise — eventually — lenders go on strike and spending has to be slashed in a crisis; or the currency devalues and everyone’s wealth is eroded. The bottom line is that you can’t avoid the bottom line.
Here’s what we know about this week’s Budget: there will be personal income tax cuts and there will be further big spending on infrastructure projects. What there won’t be is any further tax increase (that’s good) or any serious attempt to curtail spending (and that’s bad).
In other words, the government is in full pre-election mode and is more than happy to save Malcolm Turnbull’s job by shouting the bar on the nation’s credit card.
Every time this delinquency is pointed out, the government’s backers insist that Labor would be worse. That’s true. Taxes would be higher and spending would be higher because this is an Australian Labor Party that’s more and more modelling itself on Jeremy Corbyn rather than Bob Hawke.
But that hardly excuses a Coalition government — originally elected on a platform of budget repair — when it repeats Labor’s old trick of spending more, while conjuring away the deficit via unrealistic assumptions about growth in the out years.
It’s hard to overstate the significance of growth forecasts in the Budget numbers. The forecast return to surplus in 2021 assumes 3 per cent annual economic growth.
But the current actual rate of economic growth — just 2.5 per cent — if it persists, would give an annual deficit of no less than 8 per cent of GDP (or $140 billion in today’s terms) by mid-century. And a 10 per cent fall in the terms of trade, for instance, would depress current revenue and increase the annual deficit by $5 billion.
The government’s decision to abandon the increase in the Medicare levy that was supposed to help pay for the NDIS was smart politics (for once) but is still poor economics.
Everyone is in favour of doing the right thing by people with serious disabilities but numbers are up and costs are up because everyone who’s out wants to be in, and the range of disabilities covered are much greater than originally planned.
And because the feds pay the extra bills but the states control the governance, no one is really in charge of this potential fiscal sinkhole that’s projected to cost more than $36 billion a year by the end of the next decade.
To put it in perspective, that’s the equivalent of almost two-thirds of the total cost of Australia’s much debated submarines in one year of disability funding alone.
Baking in permanent spending on the back of temporary revenue (as the government did this week when it announced that — surprise — existing taxes could cover the NDIS after all) is more of what got us into this semi-permanent debt and deficit mess in the first place.
It’s a sign of how log-jammed our system has become that the company tax cuts first announced in the budget-before-last are still not legislated two years, and an election, later.
My sense is that the government will try to dress them up with the new personal income tax cuts into some sort of wider tax “reform package” to give a win to Xenophon-turned-independent Senator Tim Storer and finally get this policy legislated, and out of the political firing line.
With banks in the dock each day at the royal commission, the PM and Treasurer are bleeding politically when they say they care about bank customers, yet in the same breath, arguing for corporate tax cuts and trying to explain away their opposition to the inquiry in the first place.
Then there’s the entirely unnecessary fight the government has picked with parents over the $20 billion Gonski spendathon that still manages to short-change Catholic schools.
Judging a school’s needs on the basis of where its parents live was always going to make it impossible to have low-fee independent schools in middle-class areas.
Ever since Menzies’ time, the Libs have been the party for choice in education; this is not a political equity a government with a oneseat majority can afford to lose.
Last week, two separate polls (Sky News ReachTEL and JWS) had a majority of Australians preferring an earlier return to surplus and dealing with debt, over personal income tax cuts.
That gives me hope that there’s still people out there wanting to see the government get its house in order, before they see an extra $10 in their weekly pay.
That’s because ordinary people know that kicking a problem down the road only delays the inevitable, and often makes it worse. With debt now at $522 billion, and no real plan to tackle it, how much worse do we think it can get? PETA CREDLIN IS A SUNDAY HERALD SUN COLUMNIST