If this Treasurer job doesn’t work out, Josh Frydenberg has the perfect CV to be a daytime television show host.
He may not have yelled “you get a car, you get a car, everybody gets a car” from the despatch box, but he went awfully close. How else to explain a budget that gives money to everyone from gin distillers to the public servants who help run the Senate?
It’s only two years since Josh Frydenberg, in his 2019-20 budget, said fiscal responsibility was necessary so future generations did not pick up the tab of the last.Credit:
The government and Frydenberg did the right thing in the midst of the pandemic recession by throwing everything (including the kitchen sink) at preventing the economy from collapsing.
Policies such as the coronavirus supplement for the unemployed and the JobKeeper wage subsidy, coupled with the mostly outstanding efforts of health officials to stem the spread of the coronavirus, have put Australia in a tremendous economic position.
That position was reflected in the drop in this year’s expected budget deficit. In October it was expected to be $213.7 billion but it is on track to be about $161 billion. Record prices for iron ore (our biggest export) have helped, while the economic benefits of locking Australians inside their own borders while showering them with cash have also contributed to the improvement.
Yet the 2021-22 deficit, forecast at $106.6 billion, is only modestly down from the $112 billion that was forecast back in October. It’s a conscious decision to keep spending – a net extra $18.2 billion this coming financial year and then another $24.8 billion in 2022-23.
Most of that spending is easily justifiable. Extra cash on women’s safety, the effort to protect our elderly in care and even more cash to keep afloat recycling businesses all make sense and will ultimately lead to a better economy and a better Australia.
Before the budget, Frydenberg made much of his new fiscal thinking. The aim is to drive unemployment well below 5 per cent, which in turn would get wages up (that would help repair the budget).
Yet the extra spending is delivering very little bang for its billions and billions of bucks. The jobless rate is forecast to reach 4.5 per cent by 2024-25, with wages still growing at less than 3 per cent.
That’s after a cumulative $342.4 billion in deficits (including $57 billion in 2024-25) and the Reserve Bank holding official interest rates around 0.1 per cent while also printing another $100 billion in cash as part of its quantitative easing program.
Instead of getting a Pontiac G6 from Oprah, this prize is more akin to a 24-pack of Four ’n Twenty pies for winning the old World of Sport handball challenge.
This is going on as the government ditches the budget philosophy that guided it before the pandemic. It’s only two years since Frydenberg, in his 2019-20 budget, said fiscal responsibility was necessary so future generations did not pick up the tab of the last.
“This requires budget discipline. This much at least we owe to our children,” he said.
Those children have been pushed aside for the gin distillers and the recyclers of today. If ever those children are to pay down government debt, the economy has to grow much faster than what is mapped out in the budget.
The government’s pre-virus strategy was to eventually run budget surpluses around 1 per cent of GDP. That strategy now is to “target a budget balance, on average, over the course of the economic cycle”. In non-Treasury terms, that means “who knows, maybe never”.
Another pre-virus pledge, to not spend any revenue windfalls (for instance, iron ore running at almost $US230 a tonne), has been completely junked.
This change in philosophy is entirely justified on economic grounds, especially as, based on its own forecasts, the economy is still going to struggle for an extended period of time. But it’s hard not to think that the budget has been framed with the next election (due by May) in mind.
With almost $4 billion in spending factored in for next financial year but not announced, there’s even more scope for Frydenberg to continue spinning the wheel of fortune for the Coalition.
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