Debt and Deficit Disaster is Cancelled for Now

It is said in politics that the only colleagues you believe when contesting an internal party ballot are those who tell they won’t be voting for you. Yet the same politicians consider the voting public so gullible as to believe promises of tax cuts after the next election. 

If politicians promised to prioritise paying down debt to give us the fiscal strength to cushion Australia from future global shocks – and we weren’t calling on future generations to fund this generation’s living standards – the public would believe them. And it would be the right way to go both economically and ethically.

No political party has won a federal election by engaging in a tax-cut auction. Voters understand that the main reason politicians offer tax cuts is to save their own bacons. This is especially true when a government has been claiming a budget emergency for five years and suddenly, with an election looming, asserts the emergency is over, or at least suspended until further notice. 

Commonwealth government debt is already well over $500 billion and is growing faster than in almost every advanced economy. Yet today’s budget will not deliver a surplus. Instead, it will predict one for some time in the future, just as the last eight budgets have. 

Australians have indicated their strong support for the National Disability Insurance Scheme, government-subsidised new medical technologies and pharmaceuticals, and a strong social safety net. They are willing to pay more for improved government services – not a lot more, but some more.

By imposing an arbitrary cap of 23.9 per cent on federal taxation revenue, the Turnbull government is prioritising tax cuts over budget repair. 

Cut spending somewhere else, the conservatives demand. But where? Try reducing the age pension and see how you go. Include the family home in the age pension assets test. Yeah, sure. Abolish the private health insurance rebate that the Howard government introduced? Good luck with that. Abandon the submarine project and the bipartisan commitment to lifting defence spending to 2 per cent of GDP? Bye, bye, government.

Further winding back the middle-class welfare that the Howard government ramped up with the proceeds of the first mining boom would make sense, but the hard right of the Liberal Party has been the most hostile opponent of the efforts of the Gillard and Turnbull governments to begin this process. 

Of course, vigilance in reining in unjustifiable expenditure must remain a priority, but there aren’t massive savings opportunities just sitting around waiting to be taken. Just ask Tony Abbott who presided over the disastrous 2014 budget that the Australian people roundly rejected.

As Australia’s population continues to age, demands on the expenditure side will intensify. In these circumstances, government debt will not be paid down by one or two imagined surpluses. Inroads into the pile of government debt can be made only through a succession of substantial surpluses. 

Yet not only has the Turnbull government effectively declared the budget emergency over, so has much of the business community. The Business Council of Australia (BCA) wants a company tax cut for its members legislated now, at the expense of sustained surpluses. Rather than accepting the proven formula of broadening the base to lower the rates, the BCA is demanding a legislated company tax rate cut now and maybe it will talk about broadening the base later. 

Labor came close to winning the 2016 election. It stumbled and fell when it was obliged to concede in the final week that it was behind the Coalition in budget repair over the four-year budget period.

This time around, Labor needs to position itself as superior to the Coalition on budget repair, not only over 10 years but over the four-year budget period as well. 

So far the signs are encouraging. Labor leader Bill Shorten, shadow treasurer Chris Bowen and shadow finance minister Jim Chalmers have all signalled they will use a substantial proportion of the revenue from Labor’s announced tax measures – all opposed by the government – on budget repair. 

If Labor is able to confirm its superiority in budget repair after seeing today’s budget figures, its chances of winning the election will be greatly enhanced. The Australian people are not mugs; they know it takes more than a looming federal election to put an end to a budget emergency.