While the government’s pragmatism and its willingness to abandon its past ideological railing against debt and deficits is welcome, Scott Morrison appears to be returning to his core beliefs in lower taxes and smaller government, plus favouring welfare for business. Michael Keating reports on Budget 2020.
The headline news is that the budget deficit this year will be a record $213.7 billion – equivalent to 11% of GDP. The government’s total support since the onset of the pandemic amounts to $507 billion, more than half of which is direct economic support.
Yet the additional stimulus in this budget, beyond what was in place at the time of the previous budget update in July, amounts to only another $74.8 billion, significantly less than the extra $100-$120 billion recommended by the highly respected independent analysts at the Grattan Institute.
Given the present exceptional uncertainties in forecasting, the government should be prepared to review and, if necessary, increase the fiscal support if that proves necessary.
But more important than the amount is how effective it will be.
Tax cuts
The government has not jettisoned all its ideology, with the budget showing the government will now be relying more on tax relief and less on government spending to support the recovery. Tax relief now accounts for as much as 56% of the total cost, over this year and next, of all the new initiatives since July.
The instant asset write-off for new investment is the most expensive ($26.7 billion). However, generally business will not invest unless they are confident there will be a demand for their extra product, although because this incentive is time-limited it may have some effect.
The second most expensive initiative is bringing forward Stage 2 of the personal tax cuts. Contrary to pre-budget speculation, the government has decided to retain the low and middle income tax offset for one more year, and consequently these tax cuts will be spread fairly across the income distribution. However, there are continuing doubts about how much will actually be spent.
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As a number of economists have proposed, providing households with time-limited vouchers would arguably be much more effective. The vouchers could be targeted in areas affected by restrictions, such as tourism and the arts, and areas that would help get people back into work, such as training/retraining and childcare.
Infrastructure investment
A major ideological predilection of this government, and especially the pork-barrelling Nationals, is their support for more infrastructure investment. True to form, the budget announced a further $10 billion to the infrastructure pipeline, taking it to $110 billion to be spent over the next 10 years. What the government doesn’t seem to appreciate is that:
- The construction industry has been booming, with government real expenditure increasing at an average annual rate of 8.5% over the past four years. Earlier this year COAG ministers expressed their concern about cost over-runs caused by too much demand.
- Most of the money is to be spent on mega infrastructure projects costing $5 billion or more, but these projects employ relatively little labour, and that labour is mostly males with specialised skills. However, this recession, unlike all previous recessions, has mainly hit women and young people who are not going to get jobs on these projects.
- The vast majority of the projects do not have business cases when the governments commit to them. The choice is dominated by politics, and the reason for no business case is because most do not represent value for money.
Financing a substantial increase in social housing, where there is a real need, would have been a much better response.
Support for jobs
Another $15.6 billion has been provided for the JobKeeper program, which has provided a lifeline for many businesses and their employees. However, it is scheduled to end in March, to be replaced with a JobMaker Hiring Credit, which it hopes will give businesses the incentive to take on new employees. However, it is limited to only people aged 16 to 35. In addition, young people will benefit from a new 50% wage subsidy to support 100,000 new apprentices and trainees.
And given the much greater impact of this recession on women, the provision of $240 million through the Women’s Economic Security Statement might well seem derisory.
Support for essential services
While the government repeated its commitment to funding essential services, its track record shows this commitment has not always been met, with critical shortfalls in the following services in particular:
- Aged care: While the government has announced $1.6 billion for 23,000 additional home care packages, this will fund less than a quarter of the waiting list for packages, which stands at 100,000.
- Vocational and technical education: There has been a welcome increase in funds for apprenticeships and the number of training places. But again, all is not as the government would like you to believe. Although spending is budgeted to peak at $2.2 billion in the current fiscal year, it is programmed to fall to $1.6 billion in 2022-23 – a fall of almost 30% and less than the spending before the pandemic of $1.7 billion in 2018-19.
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- Arts and culture: This sector has been especially hit by the Covid lockdown but there’s no real increase over the next four years compared to pre-pandemic levels of funding.
- Universities: the universities claim that funding per student will fall, as will funding for research, given the extent that it was cross-subsidised by foreign students. In addition, the government has determined to more than double the fees for the humanities and significantly increase the fees for other social sciences. The government argues that increased fees can be used to drop the cost of degrees in what it alleges are degrees that better meet the needs of the labour market, but there is not a shred of evidence for this.
Important areas ignored
JobSeeker assistance: There is almost universal agreement that the level of assistance to people who are unemployed should not return to Newstart levels of $40 per day. When the government says it will review the level of assistance towards the end of this year it seems to imply they want to take account of the state of the labour market before making their decision, but this is irrelevant.
The level of assistance should be the amount unemployed people need to enjoy an austere but reasonable standard of living and the government should permanently lock in the present level of assistance under JobSeeker now.
Cuts to JobSeeker, Jobkeeper: out of the frying pan and into the fire
Rental Assistance: It is widely recognised that low-income people who are renting are distinctly worse off financially than people on the same income who own their homes. Again, these people do not seem to figure among this government’s priorities.
Childcare: Reducing the cost and increasing the provision of childcare is likely to significantly increase female workforce participation. Especially given the lack of other support for working women in this budget, child care should have been a priority.
The above article was republished with permission from Pearls and Irritations.
Michael Keating is a former Head of the Departments of Prime Minister & Cabinet, Finance, and Employment & Industrial Relations. He is presently a Visiting Fellow at the Australian National University.