Big budget spending is only part of the problem

With the Albanese government’s electoral honeymoon a distant memory it must now face the reality that actions have consequences and it is no longer enough to blame Scott Morrison for any fiscal misfortune. Jim Chalmers’ attempts to change the upcoming budget message away from inflation-busting towards targeted stimulation has collided with the reality of an inflation dragon that has not been slain yet. Against the Treasurer’s claims of good financial management, KPMG has concluded that fiscal policy has been out of alignment with monetary policy ever since the Reserve Bank of Australia started lifting interest rates, the same time Anthony Albanese came to power.

The Albanese government did not create the pandemic-inspired inflation spike that started the current upward interest rate cycle. But it cannot avoid the findings of KPMG that the federal government has kept its foot on the accelerator as the RBA has been hitting the brakes. “We have now seen government expenditures materially add to aggregate demand when monetary policy has been seeking to reduce it,” is KPMG’s conclusion. The federal opposition has zoned in on the $209bn increase in spending across the past two years, not counting another $45bn off budget, to call for restraint. Opposition Treasury spokesman Angus Taylor says the government is “resolute on doing exactly the opposite of what is required”.

Unfortunately for taxpayers, increased government spending is only part of the story. The areas where government has focused its attentions have mostly delivered suboptimal returns. There is a growing list of priority areas where Labor’s performance is falling well short of expectations and little confidence that grand ambitions can be met. Top of the list is the National Disability Insurance Scheme, which threatens to swallow the nation’s economic future unless something is done to change eligibility criteria and rein in spending. Judith Sloan has ranked the NDIS as the worst public policy of the century. It has been estimated that one-third of recent employment growth is because of the government-funded NDIS, adding pressure to an already tight labour market and helping to lift costs throughout the economy.

The energy transition is well off course and even the most enthusiastic backers say the push for net-zero emissions is ad hoc and uncoordinated. Rather than a coherent plan, the electricity sector is “stumbling towards an effective renationalisation … with higher costs and greater risks to reliability”, the Grattan Institute says. The lesson for government in a downbeat assessment by the think tank is that while many are willing to go along for the net-zero ride, failure will be an orphan that belongs solely to the Prime Minister and Climate Change and Energy Minister Chris Bowen.

On another front, against a promise to build a million new homes, the verdict of industry experts is that Mr Albanese’s flagship Made in Australia agenda will exacerbate housing shortages and increase costs. Already, building costs are up 6.2 per cent in the first quarter and the view from the suburbs is that housing construction has become “not affordable”, with developers “leaving the housing market in droves”. Rather than trying to contain costs, the federal government has been focused on adding pressure with new industrial relations laws that will make the workplace less flexible. ACTU secretary Sally McManus wants the budget priorities to be boosting wages and “creating good-quality, secure jobs for working families”. The hard lesson is that governments do not create jobs but, rather, the conditions for others to take the risk. The Albanese government is promising only more government involvement when the economy needs less.