There’s no room for big spending

Even before the starting gun is fired, the election race is producing alarming levels of spending that will not help the nation long term. After matching Labor’s $8.5m Medicare cash splash, then topping it to $9bn with an additional $500m for mental health services, Peter Dutton says he will offset some of the outlay by cutting $6bn a year from the public service. That promise raised expectations he would cull 36,000 bureaucracy jobs added by Anthony Albanese’s government. At least the Opposition Leader recognises that major outlays need to be funded.

To boost the Coalition’s credibility as economic managers, Mr Dutton and his Treasury spokesman, Angus Taylor, need to show evidence that a Coalition government would set Australia on the path to living within our means. While Mr Dutton talks about fiscal prudence, so far he has gone only part of the way towards providing a credible pathway to achieving it, despite overspending being a major Labor weakness. Labor spending policies opposed by the opposition include $22.7bn of Future Made in Australia spending across a decade, the help-to-buy home equity scheme, tax breaks for electric cars and Melbourne’s Suburban Rail Loop (the Albanese government recently approved $2.2bn for the controversial line). Nor will the Coalition, sensibly, match Labor’s $16bn promise to wipe 20 per cent off student debt.

Campaigning in the marginal Bennelong electorate in Sydney on Tuesday, the Prime Minister showed his distaste for economies involving public servants in his response to Mr Dutton’s proposed public sector staffing cuts. The loss of 36,000 positions, Mr Albanese claimed, “means less people providing support for our veterans, less people providing the support that Australians need, perhaps more Robodebt being brought back as well. These are frontline jobs assisting Australians getting rid of that queue that was there in areas like veterans’ affairs”. But Mr Albanese failed to provide alternatives. He did not say how he would fund Labor’s Medicare splurge, which was included in the December mid-year budget update under the secretive “decisions taken but not yet announced” category. Jim Chalmers said on Sunday that $5.4bn was included in the mid-year economic and fiscal outlook in December. But it was offset by other savings and $3bn was not included in MYEFO, Greg Brown reported on Tuesday. Where that $3bn will come from – and how it might be offset with economies or revenue increases or if, as seems likely, it will be added to the nation’s credit card debt – is an open question.

Neither were the Treasurer’s references to MYEFO reassuring in light of the deepening shade of red on the national balance sheet. Government spending and a $5.56bn election war chest fuelled a predicted $21.8bn deficit blowout to 2027-28. And deficit forecasts across the forward estimates have increased from $122.1bn to $143.9bn since May, the papers showed. Treasury also increased net debt projections in 2026-27 and 2027-28. Gross debt will hit $1.16 trillion within three years, the MYEFO forecast said, with the budget projected to return to balance by 2034-35.

As industry leaders warned at the time of MYEFO, the inexorable increase in government spending on public servants and social programs is destroying the national bottom line. Australia was running a two-speed economy, Australian Chamber of Commerce and Industry chief executive Andrew McKellar said, with “the private sector sort of bouncing along the bottom (with) very slow growth … the public sector is going through the stratosphere, and I think that’s part of the problem”. Since then, the Albanese government has increased its “command and control” economic footprint. Its gambling public money on “green steel” to be produced at the Whyalla steelworks is the latest example.

With government spending in the next financial year forecast to reach more than 27 per cent of GDP – the highest level in nearly 40 years outside the Covid pandemic – the major parties would be irresponsible to ignore the issue in the campaign. Their strategies to encourage business investment in the productive, revenue-generating non-government sector also will be a big influence on future living standards and warrant close attention from business. And the economics of the energy debate – the Coalition’s nuclear power pledge as opposed to Labor’s reliance on renewables, with both committed to gas – will be a centrepiece of the campaign. Former Victorian premier Jeff Kennett is right when he says the federal budget is heading the same way as Victoria’s unless political leaders show more restraint. Extra spending must be offset by savings.