Terry McCrann: Treasurer’s October surprise set to pack a giant punch
The real surprise in Josh Frydenberg’s second budget on Tuesday will be that a treasurer who was only going to have surpluses will now own the biggest deficit — something north of $200 billion, writes Terry McCrann.
Terry McCrann
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In America the political pundits like to talk about an “October surprise” – some shock news, real or manufactured, that explodes into the public square and can cripple a candidate and swing the forthcoming presidential election at the start of November.
Boy, did they get one this year, with the disclosure that President Trump had tested positive for the virus. Although, in a rather basic way, it shouldn’t have been that surprising, given his far from self – isolating behaviour.
Well, we’ve got our own similar “October surprise” on Tuesday, something that would normally be truly, truly shocking, but actually won’t be — Treasurer Josh Frydenberg’s second budget.
First off is the date – since the mid-1990s, Commonwealth budgets have been in May. Before that they were in August.
We used to think it was a good idea to know how the fiscal year (ending June 30) had turned out before doing the numbers on the future; then we switched to planning the new fiscal year ahead of it.
In one sense, we’ve now ‘gone back to the old-budgeting future’ — although not so much to see how the last year turned out but to have some real sense of where we might be headed and how to impact, positively we hope, on that future.
It would have made no sense to try to bring down a budget in May – at the very peak of the virus, and economic chaos and uncertainty. It would, probably have been literally impossible to do so.
The real surprise in Tuesday’s budget, except like the president’s virus test, it will be rather un-surprising, will be the colossal size of the deficit – something north of $200bn.
Before this year the biggest deficit we’d seen was 2009-10’s $54bn.
This will be four times the size.
It will be well more than double the $85bn that we just totted up for the 2019-20 year – a year that was made up of about nine months of pre-virus normality and then three months of virus lockdowns and panicked government spending.
That’s the starting point for this year’s numbers. Broadly, you can add on around $70bn that’s been spent on JobKeeper, which is currently targeted to end, in full, at the end of March.
Then there will be another $60-70bn of further spending, tax cuts and just the way the budget goes automatically into the red when the economy hits the wall.
There is both an ironic and extraordinary twist to all these mind-blowing numbers.
It’s largely forgotten now that Frydenberg was going to be not only the treasurer that finally got our budget back into — to use his own words — “the black”, but to be the first treasurer in at least half-a-century to only have budgets that were all in surplus.
He became treasurer in August 2018 in the ‘Morrison putsch’.
His first budget, the brought-forward election budget in April 2019, forecast a $7bn surplus in 2019-20 and then surpluses every year after that.
Not even ‘Mr Surplus’, the fiscal hero of conservatives and Frydenberg’s mentor, Peter Costello, managed surpluses in every budget.
His first, in 1996, had a $6bn deficit as he embarked on mending the entrenched deficits inherited from Labor, and he had another trivial $1bn deficit in 2000-2001.
Now, Frydenberg is not only never going to have a budget with a surplus – even if he stays treasurer as long as Costello — and not only is he going to bring down the biggest deficit of all.
It gets even more stunning: the five deficits he will unveil on Tuesday – running from 2019-20 to 2023-24, the last year of the so-called ‘forward estimates’ — will about equal and possibly exceed all the previous budget deficits added up in the entire Australian federal fiscal history!
What a switch: from a treasurer who was only going to have surpluses to one who will own the biggest — and, I don’t think we can say, best – deficits.
Unavoidable, yes — just as Wayne Swan’s early GFC deficits were.
Necessary and even desirable, yes — just as, again, were Swan’s early deficits.
But there’s the rub and the big warning: Frydenberg must — that’s of course if he is still around as treasurer — do what Swan never did in the later budgets. Haul back the emergency spending.
Along with the big spending unveiled on Tuesday, we need to see some evidence that it will be at least capped and indeed trimmed in the ‘out years’.
Importantly, concerningly, Frydenberg is starting from a worse fiscal base.
Swan started from Costello’s surpluses and net government debt of just $11bn – yes, all-but zero.
Frydenberg starts from Swan’s deficits and net debt of $373bn.
In world comparison terms that was still ultra-low. But he is going to take it close to $1 trillion.
Just like with the virus you have the same risk of galloping escalation.
Originally published as Terry McCrann: Treasurer’s October surprise set to pack a giant punch