Budget tries to fill the money hole.

“The hole could surely be seen from Mars: a deficit of $213.7 billion this financial year and projected to fall to $66.9 billion in 2023-24, still massively in the red by previous Australian standards.”

The usual wisdom is that when you are in a deep hole you stop digging. Any doubt about how deep a hole the federal budget is in was blown away on Tuesday night but, instead of stopping, Treasurer

Josh Frydenberg brought in even heavier earthmoving equipment.

The hole could surely be seen from Mars: a deficit of $213.7 billion this financial year and projected to fall to $66.9 billion in 2023-24, still massively in the red by previous Australian standards. And over the same years, net debt of nearly a trillion dollars will be racked up in the name of helping the economy “fight back”.

Frydenberg unveiled the sort of budget Liberal treasurers reserve for the eve of elections. But Peter Costello’s spending sprees in the Howard years are dwarfed by comparison. The sheer size of the numbers suggests to seasoned observers that the government only half believes in the “hope” the treasurer spoke of in his speech – hope that recovery is under way and that “Australia is up to the task”.

Frydenberg had no option but to admit that rather than being “back in the black” and having the country “back on track” – his boast last year – the “economy has been hit, and hit hard”. The culprit is not his own profligacy, he pleads, but Covid-19, which “has resulted in the most severe global economic crisis since the Great Depression”. The lines are well rehearsed, and will need to be repeated often, because Anthony Albanese on Thursday night in his budget reply not only shone a spotlight on how the government’s response failed millions of Australians, but he also outlined alternative ways to spend the billions of dollars.

The battlelines for the next election are being clearly drawn. And such is the alarm in Liberal ranks about the scale and depth of the crisis that some even believe Scott Morrison won’t wait until next year to fire the starter’s gun on an election. Although how he would persuade the governor-general that parliament had become unworkable is as much of a mystery as the course of this pandemic.

This week Labor gave the prime minister no grounds for any claim it was obstructing key measures or that it stood as a threat to the wellbeing of the nation. The opposition didn’t take the bait offered by Morrison when he rolled up the government’s massive and expensive tax measures in one omnibus bill. It supported the almost $18 billion worth of income tax cuts for low- and middle-income earners and the business package.

In a sense, quibbles were minor, given the opposition itself had called for the second round of the tax cuts and, at the last election, had an investment allowance policy for business instead of corporate tax cuts.

But Labor’s policy was a minnow compared with the almost $32 billion package now on offer to businesses. The treasurer is hoping to mobilise $200 billion worth of business investment over the next two years. He says it “will create an additional 50,000 jobs across the country”. But none of the government’s claimed job creation will be as instantaneous as the supercharged “instant asset writeoff ”. Few of these jobs are going to be delivered this year.

Treasury now estimates unemployment will peak at 8 per cent before Christmas – with 150,000 more Australians losing their jobs – and it will not go below Frydenberg’s benchmark for success of 6 per cent unemployment for four years. On Wednesday morning, Frydenberg was arguing that without his intervention, unemployment would peak at 12 per cent. His problem is that this counterfactual always fails to persuade – which is not surprising, given there are still millions of struggling individuals and families.

The government has taken a twopronged approach to the crisis by attending to the supply and the demand sides of the economy. On the demand side, there is

$17.8 billion for income tax cuts over the next four years, with most of it flowing in the first two years.

The government’s preferred view of the world says that people, through the tax cuts, will be given the chance to spend “their own money”, but the problem is they may well choose to save it. During the pandemic, we’ve seen the highest saving rate since 1974 – hardly encouraging for the hoped-for stimulus in the current circumstances.

New analysis from The Australia Institute claims the tax cuts will create far fewer new jobs than the 50,000 claimed by the government. It also found that if the $16.9 billion that the cuts will cost in the next financial year was instead invested evenly in “employment-intensive” sectors – universities, childcare, healthcare, aged care and the creative arts – it would create 210,506 jobs, about 160,000 more than the tax cuts.

The institute’s research was drawn from Australian Bureau of Statistics figures that looked at jobs created for every $1 million spent on those employment-intensive industries. The ABS table shows, for example, that $1 million of government spending on childcare would create 19.95 jobs. It is the sort of research behind Albanese’s plans for free childcare and, as he told parliament, it also boosts particularly women’s productivity in the workforce.

Confidence is crucial to get through a crisis, especially one as large as this. That’s why the treasurer kept talking about offering hope and assuring Australians the government has the plan to deal with the current horror show.

But on the supply side, Labor’s treasurer during the global financial crisis, Wayne Swan, says Frydenberg’s second budget is relying too heavily on business tax concessions to do the job. He says the budget is putting too little into direct investments such as social housing or a massive school-building program like the scheme he introduced. Labor delivered stimulus, Swan says, because the Rudd government engendered confidence that led to increased demand.

The business sector is over the moon with the unprecedented tax concessions offered. Business Council of Australia chief Jennifer Westacott says that it’s the “right budget for the right time”. But no matter how generous the concessions, business will be wary if the demand is not there. Investment decisions have been asphyxiated by the virus and the restrictions, lockdowns and shut-outs in place to contain its spread. It’s a vicious circle that cannot be broken merely by supplyside measures that aren’t targeted to areas of neglected demand in the economy, such as social housing. Customers simply can’t be conjured up to buy goods and services that they can live without.

The Morrison government has opted for the business-stimulation route, rather than the direct investment path employed by the Rudd Labor government. The prime minister told parliament he had learnt from Labor’s mistakes in the global financial crisis. He bristled at Albanese’s question asking if the “Morrison recession” would be “longer and deeper because the prime minister’s cuts to JobKeeper, JobSeeker and wages are leaving businesses and workers behind”. The prime minister retorted that the opposition leader must be the only person in the country who doesn’t understand there’s a pandemic going on.

Morrison repeated what he told his nervous MPs earlier in the joint party room, saying his government is facing a contraction “45 times more severe than when those opposite thought the response was to build overpriced school halls, set fire to people’s houses and send cheques to dead people and pets”. That trenchant hyperbole is the sort of rhetoric you hear in the heat of an election campaign. It also assumes the Liberals’ own multibillion-dollar programs will be delivered with 100 per cent efficiency, something the auditor-general is sure to have a more sobering view on.

Morrison was almost Trumpesque in his dismissal of Labor’s record. “That’s not how you manage a crisis,” he sneered. “You manage a crisis with the strength, the responsible economic management, the responsiveness and the certainty that our government has provided.”

Morrison may be certain about the budget measures he has put in place, but Treasury is far from certain they will have the optimistic outcomes he and Frydenberg are spruiking. In Budget Paper No.1, Treasury says, “How the Covid-19 pandemic will play out and its effects on communities and the economy are highly uncertain.” It warns there are large “upside and downside risks associated with the forecasts”.

The upside risks assume that Covid-19 is controlled more quickly, confidence is restored, international borders are opened and there is an early rollout of a vaccine. This could lead to a $34 billion boost to economic activity in the next financial year.

The downside risks are more infection outbreaks and reimposition of “severe containment measures”. This could see a

$55 billion hit to economic activity, every bit as devastating as the first wave earlier this year.

Albanese believes lessening the downside risks would require a permanent rise in the JobSeeker payment, a comprehensive climate policy for cleaner and cheaper energy, a plan to address the crisis in aged care and, as we saw, free childcare. The demand is certainly there: the government’s reluctance to underwrite these areas of the supply side is, in his view, a missed opportunity.

Labor is not quibbling with the massive size of the government’s borrowing and spending. Instead, the issue is whether that spending will be effective. Albanese says it’s extraordinary that “we have a trillion dollars of debt but millions of Australians are being left behind” by the Frydenberg budget.

Nobody pretends the gaping hole will be filled any time in the foreseeable future.

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