Voters are switching on to the perils of debt and deficits
But Labor’s spend-to-survive instincts in an election year put paid to a hat-trick.
Federal spending blew out last financial year by a staggering 5.5 per cent, after inflation, almost double the rate of the previous year.
Where was the emergency to plunge into a $10bn cash deficit? In Labor’s electoral polling and the mood of shoppers and employers.
Canberra and the provinces continued to spend big last financial year on the care sector, public works and to provide living-cost help to families for childcare and energy bills.
Even though the private economy was barely ticking over a year ago, with growth relying on public demand and migration, the fiscal juice kept inflation above the Reserve Bank’s target zone, meaning interest rates were held at a restrictive level for longer.
After the RBA cut its cash rate in February, that policy gamble paid off for Anthony Albanese on May 3, as indebted households could sense more mortgage relief was on the way.
The central bank’s board eased monetary policy in May and August, but is expected to hold rates steady after its two-day meeting concludes on Tuesday.
The one-year 1 per cent of GDP turnaround in the federal budget’s underlying cash balance – from a 0.6 per cent surplus to 0.4 per cent deficit was an autoinjector to the real economy.
It’s almost akin to John Howard’s “everyone gets a prize” splurge before the 2001 election, when a tax bonanza was turned back to the pockets of middle-class families and pensioners.
The Treasurer claims his record on spending is superior to the previous government’s.
Sure, but only if you think the pandemic was a business-as-usual event and spending in the four “forward years” from this year’s budget will come in at an average of under 2 per cent real a year.
Costs for defence, NDIS, health, debt interest and aged care are rising, so that’s pure fantasy based on past performance.
Then there’s the added cost of “off-budget” action worth $100bn over four years for taxpayer bets on Snowy 2.0, the NBN, Whyalla Steelworks bailout, clean energy, student-debt relief, and the like.
The independent Parliamentary Budget Office delivered its annual health check earlier this month.
The PBO said the budget would be in deficit for a decade, due to rising costs for social services, defence and debt interest, assuming bracket creep claws back a greater share of income from workers to keep it manageable.
The budget watchdog warns the coming expected deficits could turn out far worse because spending could be understated by as much as $50bn in 2028-29, which would mean “large policy adjustments” to restore fiscal sustainability.
The revenue boom is over and gross debt is pushing towards $1 trillion, the point at which “debt” becomes an earworm for the electorate.
Voters are catching on that the budget will need remedial measures. In theory, they support belt tightening – as long as their services and tax breaks aren’t affected.
Chalmers can lead the broad public discussion about the policy trade-offs that are necessary or he can continue to gloat, coveting a fiscal Dally M he does not deserve.
Labor needs to restore stricter fiscal rules; some scoreboard pressure on the custodian and his big-spending colleagues would do wonders for the bottom line.
To build back our buffers for a crisis, Chalmers may just keep squeezing younger workers, unless he can find the bottle to explain tax rises on the better off.
Or better still, finally take a scalpel to the capital’s flabby rump.
More Coverage
Businesses, workers caught in the eye of an economic storm
A third budget surplus was in sight for Jim Chalmers, as strong employment growth and export prices led to another mammoth tax take.