Coalition’s Budget & Labor’s Reply

Shorten’s Budget Reply Speech Leaves Many Questions Unanswered

Economic Effects From Budget Aggregates

Shorten’s reply to Morrison’s Budget for 2019-20 does not offer any aggregate estimates for spending and revenue next year or for the four years aggregate to 2022-23. These are normally provided as a budget presentation and Morrison’s/Frydenberg’s figures are in the published Budget papers (see this summary in Federal Govt Budget Aggregates 2018-19 to 2022-23) .

Of course, Shorten does not have the access to the bureaucracy needed to construct estimates but he does have access to the Parliamentary Budget Office which will have provided confidential advice to him on possible variations to the official estimates. Yet even Shorten’s promise to have larger estimated surpluses than Morrison does not provide any indication of what the figures are. For one thing, while Morrison’s estimated surpluses for the four years are around a very poor $45bn (about 2% of GDP for those years), Shorten’s claim could be easily presented simply by indicating a miniscule higher estimate (say) $50bn. More questionably, Labor might have estimates for both total revenue and spending which are (say) 5 percentage points higher than Morrison’s but are undisclosed and yet still have the same estimate for surpluses. That would mean a significant increase in the size of government (tax and spending) with potential adverse effects on the economy and the private sector.

In short, so far Shorten has mentioned less about aggregate figures and focussed more on claiming what Labor will spend on a wide range of estimates of specific items. He does for example claim to be spending more on health and education, which will be among those which feature in the election debate.  Perhaps the election debate will force him to expose the composition of the more important items of expenditure where he claims to be a bigger spender.

Shorten has of course  attracted particular attention to his proposal to provide $2.3bn for a Medicare cancer plan through better diagnostic services and free cancer consultations, and this has attracted wide support because many people face expenses in attempting to overcome the disease. However, while this initiative seems to deserve applause, it does not provide a perspective on other items covered by the estimates for health or on spending already made on components of the plan.

It is pertinent that the Morrison government’s estimated total spending on Health over the next four years is about $500bn, including about $90bn to the states under the National Health Reform program and about the same amount for specific purpose payments on health to the states. Assessing the “new” cancer plan also needs to take account of the fact that public health is primarily a state matter and some of the items in the “new” cancer plan would already be provided by state run public hospitals. Thus this plan is not all new but is to  a considerable extent increasing the eligibility for accessing the treatment of cancer already in place.

Economic Effects of Changes in Tax & Spending Policies

The Medicare Cancer plan illustrates on a relatively small scale how changes in government policy can improve the financial and health positions of individuals. What seem to have been neglected are the changes in tax policies which are likely to have net adverse effects on the decision making of the private sector and the economy as a whole.

This analysis derives from today’s article in Weekend Australian by Terry McCrann (see McCrann on Labor’s Budget & CC Policies). He argues that “Labor has a two-stage strategy to destroy Australia”, even suggesting that Labor could take us down the Venezuelan track.

McCrann’s Stage One,

“to be delivered immediately, is designed to destroy the entrepreneurial, investing, business risk-taking, job-creating class — with a $200 billion-plus tax attack on them and them very specifically and deliberately, the biggest in Australian history. It is sobering to detail what a Labor-Green government — as it will be, with the Greens in de facto coalition and Richard Di Natale de facto deputy PM — proposes to do from the get-go.

• End franking credit refunds.
• All but abolish negative gearing.
• Double capital gains tax.
• Increase taxation of trusts.
• Increase the top personal tax rate to 49 per cent.
• Not cut the major corporate rate from an increasingly globally uncompetitive 30 per cent”.

A detailed analysis would need to be made of the adverse economic effects of these policies and of the likely adverse effects not mentioned by McCrann of the establishment of a policy of a living wage and the increased regulation of wages and conditions of employment (virtually nothing was done to make use of the Dyson Heydon report made when Abbott was PM). But when put together these policies certainly have the potential to seriously detract from Australia’s economic performance. The detraction could be similar to what occurred under Whitlam.

But account also needs to be taken of the adverse effects of McCrann’s Stage Two, the implementation of the climate change policy. Such a policy did not exist  under Whitlam but was started under the Howard government and is now having serious adverse economic effects, notably in higher electricity prices which have increased by a large percentage under the Turnbull/Morrison governments and which would increase further under a Labor government (or require much higher  subsidies than already exist). Labor’s policy was outlined in more detail last Monday before the Budget and it includes for the first time a policy requiring that 50% of motor car vehicles to be fuelled by electricity by 2030 (!) and a regulatory policy restricting the cutting down of trees.

Viewers of my Commentary will be aware of the many reasons why the  rationale of the dangerous global warming theory does not stand up to close examination. I have also suggested that there is scope to moderate the existing policy. Such a moderation at the start of the electoral debate may provide the only way the Coalition can save itself in the election.

I conclude with one the last remarks made by McCrann in his article, viz

“What the old-is-new-again Labor party of Bill Shorten — a man with a figurative cloth cap and a brain to match but a wardrobe full of, if not Zegna, still Super 120s suits and a taste to go with them — proposes is to destroy the two core foundations of not just a modern economy but modernity itself and indeed civilization”.