LAST year’s Budget was flop; this year’s Budget is flip. How is it that Britain’s and New Zealand’s conservative governments have done so well both economically and with the voters, yet Australia’s conservative government is doing so badly with both?
This week’s Budget and its predecessor explain much of the contrast. As do the styles of government. In short David Cameron and John Key gave Britain and New Zealand the grown-up government that Tony Abbott promised us but did not deliver.
Cameron and Key both had to deal with minor parties. Both were dealing with volatile electorates. Yet both reduced their Budget deficits; increased employment and reduced unemployment; improved economic growth; improved business confidence and reformed their tax systems.
Neither used exaggerated scare tactics before the election or proposed radical, unfair, surprise measures after it.
They put a measured case that Budget repair was needed over the medium term and it would require both revenue increases and spending cuts.
Britain now has the best performing economy of the G7: GDP up 2.6 per cent; unemployment down to 5.6 per cent; weekly earnings up 10 per cent since 2010; inflation below 2 per cent.
New Zealand’s unemployment has fallen from 6.9 per cent in 2012 to 5.8 now. Inflation is at a 15-year low. Its currency is threatening parity with Australia’s.
Whereas, Australia’s unemployment is now at a 12-year high of 6.4 per cent.
So much for the Coalition’s claim to better economic management. Instead of grown-up government, we got undergraduate government.
We have had captain’s calls like knights, dames and Sir Prince Philip and an idiotic, now-abandoned childcare scheme. We had fundamentally poor arithmetic – that somehow you could reduce revenue by axing the carbon and mining taxes, promise no-one would be worse off and still reduce the deficit at a time when the prices of our exports were falling.
And now this Budget calls off the Budget emergency. Such a flip-flop dents business confidence. It cannot be restored with silly tricks like immediate deductions for items valued up to $20,000.
That is not grown-up government. It will generate a mass of idiotic spending decisions. And most of the purchases will be imports – computers, cars and the like.
It is going to cost a lot more than the $1.75 billion estimated in the Budget. People love a freebie. The scheme is as silly as the first-homebuyers’ grant.
That a government would propose such a piecemeal, unthought-out, extravagant, headline-grabbing stunt is as likely to harm business confidence as boost it.
Worse, many businesses, especially sole traders, will go into debt to make the deductible purchases.
Because this Budget has no surprise measures to hit the less well-off, as in 2014, the Government has be lauded for “passing the fairness test”. But that is merely perception not reality.
In fact, the Government is increasing income tax on people on middle and low incomes because it makes no provision in the next four years for adjusting tax rates for inflation.
Because the Government is too spineless to reform other taxes, it will allow people to move into higher tax brackets with inflation. It is in effect increasing income tax without ever being accused of it.
Very high-income earners will not have their tax rate increased as much as those down the rung because a (often large) portion of their income falls in the top marginal rate. It means there is no higher rate for inflation to push them into.
It is fundamentally unfair.
On Budget night Treasurer Joe Hockey made it a point of pride that there would be no changes to tax on superannuation. It should have been a point of shame. And it is certainly a point of poor economic management.
Increasing the tax on very large superannuation accounts would have been good economic management. It would not have affected consumer spending in the way higher income tax does. It would have been fairer. It would have stopped the folly of the government handing out more in concessions to superannuation than it spends on the pension, when the whole aim of promoting superannuation in the first place was to reduce future government spending on the pension.
The government could have imposed the GST on health and education because wealthy people tend to spend much more on these things. And there could have been some sort of compensation for lower income earners.
Another thing is that this Budget, like all its predecessors is quite misleading in one respect. It fails to adjust for population increases. So while the Government announces more money for this and that, in fact it often means less money per person.
Budget figures always adjust for inflation and talk about sums “in real terms” or “in 2015 dollars”. But they never adjust for population increases.
Indeed, excessive population growth is the cause of much of the woe in public finances. The task in health and education is difficult enough, but the task in infrastructure becomes impossible. With most public infrastructure lasting about 50 years, it needs an investment of 2 per cent of total public infrastructure each year just to keep up. If you add a 2 per cent increase in demand each year because the population goes up (by about the size of Canberra every year), the infrastructure effort in effect doubles.
And governments wonder why their finances are in a mess.
This government’s two budgets have gone, on one hand, from scare tactics to justify taking from the less well-off to ensure your mates are looked after, to, on the other hand, a grab-bag of sweeteners and fudged figures to make sure you do not loose any popularity.
The two Budgets are hopelessly inconsistent and demonstrate a lack of responsibility and seriousness in ensuring government plays a constructive role in improving Australia’s future.
They should have got some more revenue in, spent some more on infrastructure, education and training, and cut a whole lot of wasteful line items like school chaplains.
The Australian Government’s scatterbrained, lazy budgetary efforts are in marked contrast to the diligence and seriousness of purpose applied in Britain and New Zealand — and the resulting difference in business confidence and unemployment show the sad consequences.
CRISPIN HULL
This article first appeared in The Canberra Times and other Fairfax Media on 16 May 2015.