Labor’s pledge to fix the budget by ending rorts and waste, and making multinationals pay their fair share of tax, are just talking points. Shadow treasurer Jim Chalmers’ constant refrain about a Labor government focusing on “quality, not quantity” of public spending is an election slogan, not a budget strategy.
Frankly, the election is a fiscal farce. Debt and deficit failed to rate a single mention in Anthony Albanese’s campaign launch speech. Debt was mentioned once in passing by Scott Morrison during Sunday’s Coalition launch.
During their debates neither leader was seriously pressed by the media representatives about fiscal responsibility.
Cost of living is a hot-button election issue, underlined by the Reserve Bank’s mid-campaign interest rate rise to cut headline inflation. Both the monetary and fiscal arms of macro policy should be working together to fight inflation, because budget restraint will help keep interest rates – and thus the cost of living – lower. But during the televised debates neither the prime minister nor the opposition leader was seriously pressed by the media representatives about fiscal responsibility – questions journalists from The Australian Financial Review would have been sure to ask.
Yet balancing the budget over the cycle remains in the national interest of protecting this medium-sized commodity-exporting, capital-importing country from the ill winds of global volatility. Mr Costello’s budget repair established the fiscal buffers that the Rudd government deployed to support Australia’s economy through the 2008 global financial crisis.
But then, amid the second-wind China-fuelled mining boom, Australia’s great complacency and descent into fiscal populism began. Treasurer Wayne Swan’s perpetual prediction of a return to surplus never materialised, as Labor wrongly bet that the manna from the failed minerals resource rent tax would fund its schools and disability services spending monuments.
Giving a Gonski gave billions more to schools. Yet as the money poured in, the performance of Australian school students in international tests declined. Tens of billions of dollars of supposedly quality spending didn’t guarantee quality education. Meanwhile, the explosion in the cost and scope of the National Disability Insurance Scheme mocks its advocates who claimed the program would pay for itself.
The spiral continued when the Abbott government’s politically disastrous 2014 budget turned fiscal repair into a political third rail for the Coalition. As did Bill Shorten’s politically successful “Mediscare” at the 2016 election. Hence the Turnbull government went full Gonski. And the Morrison government continues to promise it will fully fund the out-of-control NDIS.
Labor now promises to spend more on the care economy in health, aged care and childcare as well. Australia is also going to have to find the money to spend more on defence to counter China’s aggression. Budget repair may be harder when social media campaigns and clickbait media outlets attack “heartless” government failures to back worthy social causes with taxpayers’ money. But with interest paid on government debt to grow to $25 billion a year by the mid-2020s, the idea that too much spending, regardless of outcomes, is never enough is not sustainable.
During the Hawke government, a left-wing health minister introduced a GP co-payment price signal to help make Medicare sustainable. Neither Labor nor the Coalition would dare contemplate this today. If both sides of politics were serious about growing the pie to shrink the deficit and debt, they should back this with a growth agenda. But their small-target election strategies rule out any incentive-sharpening tax, workplace and regulatory reform to drive higher investment, productivity, and growth.
Continued fiscal populism will permanently ratchet up the size of government. And it will leave Australia with no buffers when another black swan like the global pandemic emerges from out of nowhere.
As they ponder who should govern the nation for the next three years, Australians should demand an end to the reckless fiscal populism, instead of leaving the public finances dangerously exposed come the next crisis.