Chifley staff writer JM Butskell* hopes we aren’t headed for an economic slumber.
William James, widely considered the founder of American psychology once observed that “there’s nothing so absurd that if you repeat it often enough, people will believe it.” Sadly, this year’s Budget seems to have devolved into a form of absurdist theatre.
Absurdist theatre plots share common characteristics – frequently cyclical, repetitive and clichéd; they also involve some kind of unexplained transmutation, panic over a sudden but unrealised cataclysmic event and shifting laws of nature. Sound familiar? And the Budget premiere hasn’t even started…
The first absurdity, cycling back from 1996 is the dutiful but laborious repetition of “budget emergency” and “mess of debt and deficit”. Call off the panic, there is no budget emergency. This view is shared by a significant majority of sensible economists. Australia also has a stable AAA credit rating from each of the major ratings agencies. With an underlying cash deficit at 3 per cent of GDP (and falling) the fear mongering is really without any basis in fact. While there are medium-term structural issues that need to be addressed – a fact recognised in each of the last four Budgets and updates – it is absurd to call the current state of the Budget a crisis.
The second absurdity is the cliché that everyone is sharing the pain. Everyone will not share the pain on Budget night. First, upon coming to government, the Treasurer handed back over $3bn in some of Labor’s structural savings to high-income earners and corporations. Second, most of the new spending in this Budget will go to high-income earners such as the extravagant paid parental leave scheme and firms in particular industries such as the grant to Cadbury in Tasmania. Third, the high income earners debt levy is temporary while the cuts faced by pensioners, families, those with a disability and in need of health services, workers, innovative businesses, schools, universities and cultural institutions are permanent. Fourth, this rhetoric of burden sharing is a last minute spin exercise, a five-minutes-to-midnight appeal to our innate sense of schadenfreude making us all feel like everyone is contributing with barely any improvements to equity. Pensioners, families and the vulnerable get hit first and the hardest.
The third absurdity is that cuts will pay down debt and enable growth even though the academic basis for this assertion has been widely disputed. Just last week, the OECD warned that “heavy front loading of fiscal consolidation should be avoided”. The economy is transitioning between critical phases in its largest ever resources boom and the Budget plays a key role in managing this transition. Flagged cuts to investments in productive capacity in education, energy, research, services and Australian innovation are hardly going to aid this hand off to the non-mining sectors, let alone, ensure sustainable growth.
The fourth absurdity is that the bottom line is going to mysteriously improve just because of policy decisions. In addition to policy decisions, the Budget is also influenced by a whole series of forecasts. In fact, four of every five dollars of the cumulative deterioration in the Budget bottom line at MYEFO was driven by the use of weaker economic parameters (a sum of $55 billion). A small optimistic tweak to Treasury forecasts and estimates for GDP, employment, inflation and the like would improve the Budget bottom line without any affirmative action from the government of the day. A dash of smoke, a tweak of the mirrors and just like magic, a better bottom line could be produced in later years.
The fifth absurdity is the supposed ‘new’ money for infrastructure especially when there have been cuts to public transport and projects are being announced without any benefit analysis. As the Productivity Commission noted in March: “there are many examples in Australia of poor project selection leading to highly inefficient outcomes. In such cases, investment in public infrastructure is a drain on the economy and tends to lower productivity and crowd out more efficient projects.”
Why does this all matter? Budgets are about choices and these absurdities underlie an economic strategy driven by ideological, sclerotic and timid choices. Choices which undermine the common fabric, social innovations and fearless inventiveness which have made our nation the envy of the world. It’s bad enough that the Budget is taking the stick to the vulnerable, it’s worse that it isn’t preparing us for the future.
The popular children’s book, The Emperor of Absurdia, starts with “The emperor is in a deep sleep.” Let’s hope we aren’t headed for an economic slumber.