Treasurer Peter Costello says this is a Budget for the times. If so it is time for good book-keeping. It is time to put the economic house in order. It is time to do that on three counts. From 1992 to 1996 the Australian Government ran up a large amount of debt to a total of $80 billion. It was an unsustainable path. Running up of debt had to stop and it had to be repaid. Secondly, Australia continues to run a worryingly high current account deficit. Companies and consumers are importing too much and are not exporting enough. And export prices are low. In that climate failure by Government to control spending will result in lower international confidence in Australia. Thirdly, our major trading partners are not doing well.
The Budget exemplifies a fundamental difference between the Coalition and Labor – a difference that remains despite the end of the Cold War or Labor’s partial embrace of economic rationalism. The Coalition would prefer to get the Budget in surplus and retire debt so the economy is in good order with low inflation, low interest rates and sustainable growth. Labor, on the other had was willing to run deficits and run up debt. The philosophic difference is that the Coalition aims to make economic conditions good so people can do well on their own account. Labor, on the other hand wants the Government to do more for people.
In this Budget, the Coalition’s approach was evidenced by the expansion of the work for the dole scheme and the carrot-and-stick changes to the health-insurance system. Both have the philosophy of mutual obligation.
Mr Costal is right to concentrate on things like interest rates and debt. Ultimately, Australian families are not helped by Government largesse if that means interest rates go up or taxes have to be raised to pay the debt.
This is a very dull Budget. It is an uninspired Budget. Good. Exciting, inspired Budgets can often be three-card-trick, vote-buying exercises which have to be paid for later.
The trouble for the Government, however, is that it is unlikely that the GST will go through the Senate without compromising either the surplus or other spending. To satisfy either Independent Brian Harradine or the Democrats the Government will have to spend. That means a compromise on philosophy: more money handed out by Government. Also, the Government has promised reform of business taxes. That might be revenue neutral, but more likely it will affect the Budget’s structure. This Budget is a holding-pattern Budget for this year only. Its projections for future years are entirely problematical.
Further, Mr Costello’s dream of a debt-free Commonwealth by early next century is also dependant on the sale of Telstra. Again that requires Senate cooperation. Still those factors are not Mr Costello’s fault, and his book-keeping for at least one financial year has shown commendable restraint. Some might have wished he spend the surplus. But that would be premature. Australia needs a few more surpluses yet to control the debt.
One inspirational element to this Budget is the huge increase in funding for scientific research, particularly medical and health research. This is a welcome move. The Government is at last recognising the importance of pure research and recognising that government must have the carriage of it because the private sector simply will not do risky, expensive long-term research. The next step is to widen that view to general research across the whole university sector. The extra research funding should be seen more as a prudent long-term investment that a short-term spending splurge.
The changes to health insurance are a change in the right direction after two patently foolish earlier attempts to lift private health cover. The earlier attempts (the incentive payment and the 30 per cent tax rebate) were a wasteful subsidy for people who already had private cover. They cost far more than was reaped in new people taking out private cover. Not good book-keeping. The new scheme, on the other hand, addresses one of the several failures of the present set up: community rating. It is absurd to charge everyone the same for health insurance irrespective of risk. Under the new scheme, people who join private funds later in life will have to pay more. Those who get in when they are young will pay less and will keep their low premiums (as a reward) for as long as they stay in private cover. A sensible use of the carrot and the stick.
Some line measures were clearly driven by ideology and others by base pragmatism. The disproportionate boost in funding to private schools is an example of the former. And the disproportionate spending for Tasmanian transport, sport and arts can be seen as crude currying of favour with Senator Harradine.
There was a swag of measures for the Bush. That might be seen as rewarding the Coalition’s constituency, but is probably fair enough considering how hard the Bush has been hit in the past 15 years by globalisation, privatisation and by missing out on the telecommunications revolution. Many of the transport initiatives in the Bush come out of a static budget, but the increase in community services spending is an overall increase and one properly made.
A disappointing feature of the Budget was the forecast for little improvement in unemployment. In the short-term much will depend on the participation rate. In the long-term the unemployment rate will depend more than anything on educating the workforce. Working for the dole can only give marginal help in building up a work ethic.
In all, an orderly budget marking time for next financial year.