After a bastard of a year, the Coalition unveils a budget of heroic optimism. But will it work?
What can you say about a recovery budget crafted during a crisis around a number of best-case assumptions? I guess what you say is: “Fine, if it works.”
The world envisaged by the 2020 budget is a world where we have an effective Covid-19 vaccine next year, there are no major outbreaks triggering major lockdowns like the one Victoria is still experiencing, and the borders are back open – including, towards the end of 2021, the international border.
It’s a world where economic growth tumbles down and then rockets back up to levels well above where growth was before the world crashed into this pandemic and its accompanying global recession.
That happy scenario ignores the reality that countries have experienced persistently low economic growth and low inflation since the last global recession triggered by the global financial crisis – the one Australia missed.
Debate about how we reverse this trend is muted in Australia, but econocrats around the world are wringing their hands because they don’t know precisely what set of prescriptions will fix that problem.
The world of budget 2020 is a world where there is all this pent-up demand just waiting to be unleashed, where Australians are bullish enough to spend their tax cuts to boost consumption, and where businesses are game to buy stuff and take on new staff even though nobody knows how long this crisis will last, and how bad things might get.
It’s entirely possible that the generous investment incentives in this budget (and they are really generous) will trigger an investment spree if you can expense pretty much everything you buy.
But will businesses really be game to take on a young person for a timelimited wage subsidy that (likely) disappears after 12 months? Optimists will, perhaps. Perhaps I just need to work on my optimism. 2020 has been a total bastard. Note to self: work on optimism.
In any case, much will be made about going from the budget being “back in black and back on track” the last time Josh Frydenberg rose at the dispatch box on budget night just over a year ago, to record deficit and debt. It is quite the ride – from the Coalition’s apocalyptic screeching about deficit disasters to 6 October 2020.
But the striking thing about the budget is not that the Coalition has discovered how to spend during a crisis, but how on-brand the prescriptions for recovery are.
The prescriptions for recovery are cut taxes, give businesses incentives to spend and take on staff.
Again, fine if it works, if it drags a country out of a hole. But there are viable alternatives to this model.
The alternative to tax cuts would be directing spending towards industries that still employ a lot of humans, and are likely to employ humans for the foreseeable future.
Let’s just step through one example. The Australian Institute of Health and Welfare tells us Australia’s population of people aged 65 or over will increase from 3.8 million in 2017 to 8.8 million by 2057. Life expectancy is increasing. A 65-year-old man is now expected to live for 20 more years and a 65-year-old woman for another 22.
That’s seven years longer than the life expectancy of the 1960s. But this cohort of people requires more care and medical attention than the rest of the population.
Demand for home care packages for aged care significantly outstrips supply.
Some 102,000 people are on the home care waiting list and 30,000 elderly people died over the past three years waiting for a package they were assessed as needing.
This budget does include more spending on home care packages, which is welcome. It is also reasonable for the government to wait for the findings of the aged care royal commission before unveiling a set of long-term reforms to the sector.
But whatever changes are eventually forthcoming, they will cost money and, likely, big money. Officials from the health department told the royal commission it would cost in the order of an additional $2bn to $2.5bn a year for everyone now on the waiting list to get a home care package.
Investing more in aged care services not only furnishes dignity for
people who have contributed to this country all their working and caring lives, it creates long-term employment opportunities for carers. It also frees up family carers, many of whom cannot take part in the labour market because of the unpredictable needs of elderly parents.
Moving in the direction of universal free childcare (something the government experimented with during the pandemic, to the horror of some on its backbench) would be another option to mull. Australian families now spend more on childcare than the OECD average, and public funding for childcare and early childhood education is lower than the OECD average.
Moving in that direction would cost a bomb but it would also generate substantial employment opportunities for childcare workers, and it would turbocharge female participation in the labour market, which would be a positive driver of economic growth.
But pursuing these kinds of options would involve governments making peace with the power of government – something that’s difficult for small government parties, even if Australian voters learned to appreciate their governments during this pandemic.
It would involve making peace with the notion that governments need to be more present over the long run to nurture economic growth. It requires a more fundamental rethinking the role of government and fiscal policy.
But when that thought is hard to make peace with – and in all fairness “big government for longer” is a genuinely challenging thought for centreright governments, including our own – the political resort is generally this.
A fistful of dollars, cross fingers, and hope everyone opens their wallets.