Malcolm Turnbull gets this very basic issue wrong.
When a cabinet is presented with a surplus it is sorely tempted to spend it on some or all of the following: tax cuts, hand outs to politically important interest groups, infrastructure (often in marginal seats) and of course at the same time with lots of money sloshing through the doors it is very hard to persuade ministers to cut the costs in their own departments. “Why should my department have to cut back when Buggins over there is getting a few hundred million for his new project?”
His argument is for a sovereign wealth fund – the existence of a SWF could encourage government to save. Then we have this
Of course, governments can just rack up surpluses and have the money in the bank, but without a specific savings objective the arguments for ‘giving us our money back’ are pretty compelling in a political sense.
What? Like letting us keep our money out of your clutches isn’t always a compelling story?
So imagine a cabinet considering what to do with a surplus; on the table are some buckets, one of which is marked ‘unsustainable tax cuts’. Another is marked ‘infrastructure projects in marginal seats – don’t worry about a cost benefit analysis’ and third is marked ‘some more middle class welfare’. But imagine if there was another bucket marked ‘saving for the our children and grandchildren’s future’.
There is no such thing as unsustainable tax cuts, only unsustainable spending. People can save for themselves and their own children – they don’t need government for that.
Update: Malcolm Turnbull responds here.