The upcoming federal budget is being held hostage by the Victorian premier
Next week’s federal budget is being held hostage by an incompetent and dictatorial Victorian premier, writes Terry McCrann.
Terry McCrann
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Next Tuesday Treasurer Josh Frydenberg will unveil a most unusual budget — it will be the most unusual budget in Australian fiscal history for the most unusual times we have ever found ourselves in.
Right now we are in the middle of the worst recession we’ve experienced in nearly 100 years. What makes it “unusual” — that’s, to say the least, it’s actually unique — is that it is a recession actually ordered by the government.
The government ordered businesses to close; the government ordered people — by the hundreds of thousands — to lose their jobs.
We’ve never seen anything remotely like it before.
What makes it even more unusual/unique is that virtually the entire world did exactly the same thing: ordered their economies into deep recessions and so the entire world economy.
Now of course in every case it was for the entirely commendable reason of fighting the virus and saving lives. But that doesn’t detract from the economic and financial destruction and the devastating personal consequences.
Two further things make it even weirder.
At the “big picture level”, China — which of course caused it all — was the first country to (seemingly) get on top of the virus and then move quickly to relight its economy.
In the June quarter, when everyone else was going right over the cliff — our economy plunged by a record 7 per cent but that looked good against the UK’s 20 per cent drop — China actually and all on its own, grew its economy.
Can you believe this? Worldometer tell us that China — with the world’s biggest population of 1400 million-plus — now ranks 44th in terms of total virus cases.
It’s actually had fewer cases than Sweden, population 11 million. Now, while that might be half understandable given Sweden’s notoriety as the standout for not locking down, China’s actually had fewer cases than countries like Kuwait (population 4 million) and Belgium (also 11 million).
Well, whether those China virus case numbers are as believable (not) as its GDP and other economic numbers, the fact that China was the first to re-open its economy was just great for us, as China replayed what it did after the GFC: pour money into Australia.
Now, we didn’t allow it to pour money in quite like and as much as it did after the GFC — Chinese tourists, Chinese students and Chinese investors buying property — but the China-led demand for WA iron ore has been the single biggest thing going for our economy through this troubled year.
So at one end — the “Big Picture” end — we had China doing what it could and doing what it’s been allowed to do to boost the Australian economy.
While at the other end — the decidedly “Small Picture end” and indeed at the other end, so to speak, of China’s own so-called “Belt and Road” initiative — Victoria has been doing its best to keep the national economy in recession.
In The September quarter the national economy was headed for a 4-5 per cent snapback of the June quarter’s 7 per cent plunge.
Then Victoria decided to keep one quarter of the national economy in the toughest lockdown anywhere in the world — apart from those initial weeks in Wuhan when nobody knew quite what we were dealing with.
Treasury and the Reserve Bank have estimated that would wipe out any growth for the entire national economy for the September quarter.
They estimated that September quarter growth would be around zero, give or take the odd decimal point either side.
We will find out Treasury’s latest thinking next Tuesday. We will find out what the actual outcome was when the ABS releases the official numbers in early December.
On Sunday, Victoria’s Premier, Daniel Andrews, effectively announced that he would keep one quarter of the national economy locked at the bottom of that economic cliff for at least October and possibly November as well.
This is the broad backdrop to next Tuesday’s budget.
It will reflect the reality of what the federal government mandated for Australia through 2020, against that global backdrop.
It will have to incorporate what Premier Andrews is mandating for one quarter of the national economy, pretty much into 2021 and maybe even longer — with a contributing role being played by the border closures of especially Queensland and to a lesser extent WA and SA.
Last week, Frydenberg confirmed that 2019-20 left him with the dubious distinction of presiding over the biggest deficit in Australian history at an (ever-so-slightly better than forecast) $85bn.
This year’s deficit was last forecast to more than double, to $184.5bn. All the “experts” are predicting it will easily top $200bn — Premier Andrews is doing his best to help ensure it does.
The deficit alone makes it unusual. The substance will as well — for it will be pulling and pushing at the same time.
The government has already started to cut back On JobKeeper and JobSeeker — the two key moves it unveiled to offset its enforced recession.
Yet at the same time it will be bringing forward the already legislated tax cats and embarking on other spending to try to boost the economy.
Does this make sense? In my view, yes. It has to wind back especially JobKeeper. It’s better to do it progressively rather than in one hit at the end of March.
But doing so has to be on the basis that the economy is ordered by government to re-open; so businesses can get back to business; so employers can get back to their real jobs.
That makes Victoria’s problem of an incompetent and dictatorial Premier the nation’s — biggest — problem.
Originally published as The upcoming federal budget is being held hostage by the Victorian premier