Our Ideal Budget: One eye on the next step, the other on the road ahead
The Commonwealth Government is seeking to use tonight’s Budget to triage the economic bleeding associated with the coronavirus-induced recession and reset the economic narrative away from unemployment and business shutdowns to one focused on job creation and nation building.
Treasurer Frydenberg has been able to adopt a ‘we’ll-try-anything-once-fiscal policy’ to try to kickstart consumption and investment. Compared to ‘normal’ times, the political environment of the pandemic is such that the Treasurer has been given a virtual open cheque book and a free pass to ignore historical philosophical positions which would usually constrain what government is prepared to do.
All of this is evident by the adoption of what the left would consider to be, ‘socially responsible’ economic policies, such as underpinning of job creation through broad based wage subsidy programs, plus the likelihood of a sugar-hit of cash payments to those most vulnerable in society. However, the traditional Liberal Party supporter base has also been rewarded through (backdated) personal income tax cuts, tax relief for small businesses, a reversal of plans to shelve R&D tax concessions and accelerated depreciation for a larger proportion of businesses in Australia.
The proposed spending largesse is immense. The expected negative impact on government tax receipts is immense. The net effect of these impacts is a forecast Budget deficit in absolute dollars never seen before and in relative terms (i.e. as a proportion of GDP) not seen since 1943; the height of spending associated with the second world war. This pushes our national debt beyond $1 trillion, which represents roughly about 50 percent of annual GDP.
The size of this current economic and social catastrophe brought about by COVID-19 is one we haven’t seen in nearly 80 years. It will take time to come back from this. But our nation can.
Tonight’s Budget sets the stage for this come back; and, if what we already see is true, it does so in an expansive and thoughtful way – balancing the needs of the individual against the needs of the nation.
Our only concerns is that while this Budget necessarily has to have an immediate, short term focus to stop the nation falling backwards into an economic abyss, the government should also be laying the foundation for budgets in the next 2 to 5 years where the focus needs to be reset on a productivity agenda and the enabling of structural reform.
Different to the last time our nation found itself needing to rebuild after a global calamity we had the impending benefit of mass international migration that helped grow our population and spread the load in generating an economic recovery. This time it’s unlikely we’ll see the same post-war levels of migration induced growth, meaning we need to ensure self-generated productivity growth and structural reforms occur to guarantee our future prosperity.
This pandemic just shows what a difference 12 months can make in an opening line of any Treasurer’s speech. Let’s hope next year’s speech is cast in platitudes about the impact of the past pandemic, the strength of the recovery embracing our nation and brightness of our collective futures given the new path forward.
Naysayers will focus on doom. They can do that. However, Australian’s are a resilient and innovate bunch; and history shows we have the capacity to knuckle down in times of adversity and gradually work our way through to the other side.