AFR: Budget 2015 | We Are Indulging in Fairytale Economics

Rainbow economics is Canberra’s latest fad. Just as building a wall around Australia to keep out consumer goods made by foreigners was all the rage for the first 80 years of last century, fashionable parliamentarians these days believe Australia yet again will be kissed on the arse by a rainbow. Continued prosperity and happiness will be showered upon us. In this illusory world, politicians need only tell the people what they want to hear and they will keep their jobs. That’s what matters in Rainbow Land: leaders keeping their jobs, even if the workers lose theirs.

Just a year ago the government warned us Australia was headed into a dark, turbulent storm. But now it's all smooth sailing, the sun is shining, a rainbow spans the nation and the people are safe and happy again. All that was required in Rainbow Land was to jolly the people along, invite them out to dinner, see a movie, take a holiday and put an extension on the house funded by interest rates which once were an emergency but now are at wonderful lows.

Even the Reserve Bank Governor has condemned talk of an income recession despite real wages continuing to fall. Not even a government taking a rising share of falling real wages can make the workers grumpy. Hi ho, hi ho, it’s off to work we go in Rainbow Land where less is more. With less in their wallets and purses, workers will spend more, creating more jobs for their fellow workers.

Gee, it's incredible what a bit of accelerated depreciation can do. What a pity the previous government didn't think of that to help avert a recession during the Global Financial Crisis. Oh wait, it did. Back then the rainbow coalition, then in opposition, claimed encouraging small businesses to invest wouldn't work, since they didn't have the money to buy new tools, Utes, computers and hairdressing mirrors. When the previous government made this instant asset write-off a permanent feature of the landscape, the rainbow coalition condemned it as unaffordable. But now the rainbow coalition has found it not only affordable, it has trebled it. All the happy small business owners “having a go” in Rainbow Land will return the budget to surplus in just a few years. It's such a fabulous idea that the opposition not only supports the rainbow coalition, it is keen to work with it to go even further.

In Rainbow Land, miners will continue digging up enormous amounts of red earth to send it to a giant living to our north. Some of us heard a story that the northern giant has a new friend named Brazil who’s going to sell it lots of red earth too. The northern giant will even help its new friend buy huge vessels to carry the red earth to the giant’s blast furnaces. But here in Rainbow Land we are confident the giant will need so much red earth that it will buy as much as we can dig up and at pretty good prices.

Rainbow Land’s leader is equally confident that coal will be king for the next 50 years. Mischievous people have been telling stories that the northern giant wants to breathe cleaner air and will buy less coal in the future, as it has done in recent times. But in Rainbow Land we know that can’t be true. Even sillier stories are being told of our northern giant using energy from the sun that can be stored in batteries dreamed up in a place called Silicon Valley. As the chief business adviser to the leader of Rainbow Land points out, the story that the earth’s air is getting warmer is a hoax invented by make-believe scientists whose real plan is to take over Rainbow Land and all the other nations of the earth and install in their place a One World Government.

This modern day Alice in Wonderland story would be a fabulous gift for children if it didn't have such a tragic ending. Workers will lose their jobs. Blokes in their fifties, having been retrenched, will never work again. Young people in their early twenties will never have had a job. Small business owners will bankrupted. Families will broken. That's the human face of an economic crisis of which we are forbidden to speak in Rainbow Land.

Craig Emerson, managing director of Craig Emerson Economics, is adjunct professor at Victoria University’s College of Business.