I’m old enough to remember a time in election campaigning when the first question asked of a political leader proposing to spend money on a new program was: how is this going to be paid for? These days, no one bothers to ask this question, not even someone from the opposing side.
Now politics is more akin to a television program in which everyone is a winner and money falls from the ceiling to rapturous applause.
To be sure, it’s not always money – sometimes it’s green plastic Medicare cards that will “guarantee” free-of-charge access to a GP. Anyone who suggests this largesse is not sustainable and ultimately has to be paid for is quickly dismissed as being out of step with the current vibe.
People are under pressure and the government must step in to help. The fact that this is really robbing Peter to pay Peter is a point that is simply overlooked.
The grip of this mass illusion was demonstrated by the widespread tepid reaction to the warning of one of the key rating agencies in the last few days of the election campaign.
According to S&P, one of the world’s largest rating agencies, there is a very real prospect that Australia will lose its AAA credit rating “if major election commitments aren’t funded via additional revenues or savings”. Questions were also raised about Labor’s dubious off-budget spending, which amounts to about $100bn in just four years.
But when Anthony Albanese was asked about the S&P report, he simply shrugged it off, declaring he didn’t take any notice of the rating agencies. As for off-budget spending, he offered the false assurance that commercial returns will be generated in time. They clearly won’t be – think here the NBN and the Whyalla Steelworks as examples.
But with Labor experiencing such an emphatic electoral victory, it’s unlikely the cabinet will be spending much time discussing ways in which the growth of spending could be reduced or savings made. Making everyone a winner with no one left behind is an expensive venture.
Even so, there is no way of getting away from the scary nature of the budget figures. In the coming financial year, commonwealth spending is expected to be about $777bn, or 27 per cent of GDP. At the end of the forward estimates, spending will be higher by another $100bn. Total underlying budget deficits over the period will exceed $150bn.
The situation is even more dire when it comes to the headline deficit, which incorporates the off-budget spending. Over the forward estimates ending in 2028-29, the cumulative headline budget deficit is expected to be about $236bn.
The fact that during the campaign Jim Chalmers didn’t seem to understand the difference between the underlying and headline budget figures is a real worry.
With all this overspending and the insufficiency of revenue, the obvious outcome is rising government debt. By the end of the forward estimates period, gross government debt will exceed $1.2 trillion, or 37 per cent of GDP. Note that in 2010-11, gross debt was only 13.5 per cent of GDP, and that was after some substantial spending measures had been undertaken in response to the global financial crisis.
Of course, increasing government debt comes at a substantial cost in terms of servicing. Next financial year, net interest payments are expected to run to $18.5bn; in 2028-29, the figure is forecast to be $28bn. This buys a lot of hospitals, schools, doctors, teachers and defence spending.
The reality is that most members of the voting public have only a vague appreciation of the state of the government’s books. No politician, be they Labor or Coalition, has been talking about these alarming figures or the possibility that it may all blow up at some stage.
Some older voters may recall Paul Keating declaring in the mid-1980s that Australia could be a “banana republic”. These days, many younger voters may not even understand the reference to “banana republic”. No one cautions about the dangers of deficits and debts, and while the figures on face value may look alarmingly large, most voters will simply assume it can be sorted one way or another. This situation is made worse by the trend to universality of government benefits.
One of the principal means whereby Keating, the Labor treasurer, and finance minister Peter Walsh were able to repair the budget in the 1980s – they did a mighty job, by the way, with spending falling from 27.5 per cent of GDP in 1985-86 to 22.9 per cent in 1988-90 – was to insist on strict means-testing across the board for all government payments.
For Walsh it was not simply about the dollars; it was matter of principle. His view was that the role of a Labor government was to assist those on the lowest incomes and unable to help themselves. He didn’t think a government should be in the game of replacing private spending with taxpayer benefits.
The view of our current Prime Minister is the polar opposite. He wants government spending to be spread across almost everyone, be it childcare, visits to GPs, aged care, housing assistance; the list goes on.
This is not unlike the Scandinavian model, where public provision across a wide range of services is the norm, but with a high tax take to accompany this arrangement. Interestingly, there has been some serious questioning of this cradle-to-grave welfare model in Scandinavia itself.
One of the presumed electoral advantages of Labor’s current universal model is that because nearly everyone is on the take to varying degrees, voters can’t afford to toss Labor from office.
Rather than the Coalition querying the model, a me-too approach has taken hold, with the election campaign clearly illustrating the unwillingness of the Coalition to refuse to match Labor’s expensive promises – the (highly inefficient) promotion of GP bulk billing being a prime example.
For the Coalition, this all came to a head with the late-in-the-day release of its election costings, in which a higher deficit than Labor’s was forecast for the first two years of the forward estimates.
The combination of the trivial difference to the cumulative budget deficit and government debt lower by only $40bn meant any claim the Coalition could make to being the more responsible budget manager went up in a puff of smoke. There was never any chance of making the moral case that debt and deficits matter.
According to former Coalition treasurer Peter Costello: “I always argued, when I was paying off federal debt, that debt is not just an economic problem, it’s a moral problem. That by running up debt, society is consuming its resources on itself and sending the bill to the next generation.”
Can anyone imagine either a Coalition or Labor politician making this point now? The only time when the constraints on the handing out of free stuff will have to be acknowledged is when international financial markets decide enough is enough.
The adjustments are likely to be painful, but they may come as a real surprise to voters who have been lured into believing that money grows on trees. It doesn’t.
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