3
Apr
2019

Commonwealth Budget 2019/20

Commonwealth Budget For 2019/20 Won’t Save The Bacon

Today’s Media has included many comments on the Morrison Government’s Budget for 2019-20 as well as estimates of revenue and expenditure for the following three years. These include a large number of decisions and it would not be appropriate here to examine them in any detail: indeed I challenge anyone to examine what one journalist described as “a budget speech littered with references to plumbers, couriers, cranes, hard hats, teachers, tradies and nurses”. My general conclusion on the speech I watched on TV was that it did not impress most on the Coalition benches and some of those there tended to drop off and, after a time, showed little encouragement as Frydenberg continued well after the half-hour finishing time allocated to budget speeches. In consequence, what my comments below mainly relate to are the totals of revenue, expenditure and what is commonly treated as the deficit or surplus for the four years.

But these need also to take account of the possible reactions to budget decisions on taxation and spending on capital projects which increasingly purport to extend beyond the four years. For instance, the Morrison government’s budget announcement included an addition of $25bn to the existing infrastructure program of $75bn which is spread over in ten years. This reflects the increasing involvement of the Commonwealth in what are (or should be) basically State matters including the congestion resulting from higher immigration but which the Federal government also believes it needs to be involved in order to attract votes. The result of the election in NSW, in which both the Liberal and National parties lost seats, led the Morrison government to publicise in the Federal budget its involvement in regional NSW.  On tax, the difficulty in assessing the tax policy is that the second round of personal tax reductions will not start until 2022-23 and that is then reflected in a reduction in about half the estimated surplus for that year.

In interpreting the budget it is also important to realise the Coalition will face the election in May with electoral polling which indicates it is almost certain to lose. As such, apart from possibly indicating  the Coalition’s budget as no more than a manifesto with which to start the election debate, the same applies to the manifesto which Shorten has announced.  He is now further developing that by announcing yesterday the 50% compulsory electric cars by 2050, which has (rightly) been widely characterised as absurd. Shorten has also failed to indicate the costs of his environmental policies. This situation further widens the gap between the two parties on the issue of dangerous global warming which appears likely to be a major discussion item. Unfortunately, the Treasurer’s budget address re-stated the Coalition’s existing policy of reducing emissions as stated in Paris and  announced a $3.5bn “climate solution package” apparently designed to soften the moderates within the Coalition.  Another bad poll would provide the opportunity to moderate this policy but it looks as though such a moderation is not politically possible.

Yet it is reported today that three senior ministers, including Morrison, have decided over-night to add over $300mn to energy supplements and amend the budget the day after it was introduced!

In a situation of emergency one possible policy change on the environment might extend to pointing out that the prediction in temperatures by supposed climate experts has been three times higher than the actual increase in temperature as published by the IPCC. This failure of “scientists” to get anywhere near a meaningful prediction in temperatures indicates the need to urgently review the dangerous warming belief and provides a basis for at least moderating current policies (see advertorial Global Warming as published in today’s Australian by the Climate Study Group). This research indicates that the most highly likely warming over the period to 2100 does not justify the current expenditure by governments of squillions  of dollars on reducing the usage of coal.

Following are my brief comments on the major items in the Budget:

  • Overall, there is no indication that the Morrison government aims to reduce the size of government. Estimated payments (ie expenditure) by the Federal government are about the same proportion of GDP throughout the four years covered by the budget (24.5 -24.6%). That is fractionally lower than in 2018-19 (24.9%) but that probably reflects a spending splurge in that year to reduce the amount to be allocated in the budget year. That is estimated at 25.2% of GDP, which is fractionally higher than in the last year of the Keating government in 1995-96 and is higher than in the last few years of the Howard government;
  • Treasurer Frydenberg (and Morrison) have claimed that the budget showed they had not increased taxation. But tax as a proportion of GDP is shown as slightly higher in 2019-20 than in the previous year (23.1%) and only fractionally lower in the last of the four budget years (2022-23) for what that may be worth. As there is no data readily available on the split between company and personal income tax, the increase in company profits may mean that personal tax proportion of GDP may have been reduced. But total  estimated taxation in the current and next three years is the highest proportion of GDP since the final years of the Howard government in early 2000s;
  • As has been much acclaimed by the Treasurer and Morrison, after 11 years in budget deficits and a consequent increase in net debt, a surplus is estimated for 2019/20 (0.2% of GDP). But this is not a result that a government would normally boast about, which is probably why Frydenberg has limited his reference to the four year total. It is also exposed to possible minor adverse effects from reduced company profits due to falls in commodity prices. It’s good to be “back in the black” but the aim should be to achieve a much higher surplus and pay off more debt.

Overall this is a useful budget (a “B” perhaps) but it falls short of what is needed to avoid scattering spending to buy votes, to reduce debt and does not provide a bulwark against attack from serious adverse changes in economic conditions here or overseas. It does provide a test for whether Labor is prepared to maintain the aim or fall back to the deficits incurred by Rudd. Hopefully, the latter are so recent that Shorten will be able to persuade his left wing to stick to the surplus aim.

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