Terry McCrann: Federal budget will be all about spending money
Federal government spending this year will be around 34 per cent of GDP. No previous treasurer has got remotely close to that before. But the big cash splash is a no-brainer for two reasons, writes Terry McCrann.
Terry McCrann
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What is going to be in Tuesday’s budget? Just about anything and everything — maybe even including the fabled kitchen sink.
Treasurer Josh Frydenberg is going to be spending money like there’s no tomorrow and he’s able to pay for it by just rolling the virtual reality billion-dollar bills off the virtual reality printing press in his special Treasurer computer.
In a very real sense, that’s exactly what he will actually be doing.
Over the two fiscal years — the last one ending June and the one we are in — the federal government is going to be spending, at least, $300bn more than it raises in revenue.
It will just “print” new government bonds to that amount and sell them to investors, here and around the world. They will lap them up — and to the extent they don’t, our Reserve Bank will buy them anyway.
It’s a no-brainer on two levels.
One, the government just has to spend the money; it has no option; it cannot leave the economy mired in recession and millions of Australians hurting without that spending.
Some of that spending will put money directly into people’s pockets — these days, directly into their bank accounts. Some of it will boost business activity and jobs.
Spending in this current 2020-21 year will be at least $140bn more than it was projected to be in the mid-year budget update — just 10 months calendar-time and light years virus-time back just before last Christmas.
That was of course “on the other side of the virus” — at least, so far as we knew; it was actually already bubbling away in Wuhan, preparing to up-end everything everywhere.
The spending numbers will be quite simply mind-boggling.
In the past fiscal year ended June 30, spending leapt by nearly 15 per cent in real terms. All that increase was concentrated in just the last four months.
This year the increase will be even bigger, closer to 16 per cent and thereby be nearly one-third higher than it was just two years ago and indeed also to what, pre-virus, it was going to be this year.
Before this, the single biggest one-year increase in spending was the 12.7 per cent “Go hard, go early, go to households” of 2008-09 to fight the GFC.
Frydenberg is going to easily top that in not just one but in two successive years, in spending the like of which we haven’t seen since the crazy days of the last two Whitlam budgets in the mid-1970s.
But again, the Frydenberg numbers are in a class of their own. Federal government spending this year will be around 34 per cent of GDP.
No previous treasurer has got remotely close to that before
Not those of the Whitlam period. Not Paul Keating in his big-spending early years in the mid-1980s.
And certainly not Wayne Swan, even in that 2008-09 year when his spending rose to a comparatively modest 25.1 per cent of GDP.
The second reason that makes it even more of a no-brainer, though, to spend the money is that the government can cover it with borrowings at virtually zero interest — somewhere between 1 and 2 per cent depending on how long it borrows for
But — and the years after that 2008-09 Swan budget are ominously instructive — the spending and the deficits have to be wound back.
Ominous, because after 10 years, the Swan spending had been only marginally wound back — from 25.1 to just 24.9 per cent of GDP by 2018-19.
It’s tough, very tough to do, whether Labor or Coalition governments. Getting the deficit down from 2008 through 2019 was all — all — achieved by boosting the tax take.
Now, while this huge deficit will come mostly from increased spending, lower taxes will also be a contributing factor.
Tax revenues are falling because of the recession, but also because of deliberate tax cuts — the bringing forward of the already legislated (and very sensible, structurally reforming) cuts.
While they have been already budgeted for in the “forward estimates”, bringing them forward does cost the budget and deliver a real benefit to taxpayers. You get (to keep) your money sooner.
We know the spending will be very high. We know tax revenues are going to be lower. We know we will see deficits that could never have even been imagined before.
But the actual figures will also be wonky as never before.
The whole budget will be based on the assumption we — the world — get an effective vaccine, so that the world can go back to functioning as close to normal as possible.
Who knows whether that will be the case? Who knows what the numbers will actually be — far less the actual on-the-ground reality — if we don’t get it?
Originally published as Terry McCrann: Federal budget will be all about spending money