How disappointing has been the performance of the new Treasurer? You could close your eyes and think that it is Wayne Swan talking drivel, presumably in part fed to him by his advisers and Treasury. All ambitious politicians think they can be Treasurer; they are wrong.
What’s this walking away from achieving a budget surplus and introducing a new target of achieving a budget deficit below some long-run average (how far back to you go figuring this out? Include WW2 perhaps?) of 0.8 per cent of GDP.
Evidently, according to Wayne Morrison, as long as the deficit is around or below (by assumption, mate, because these are forward estimates) 0.8 per cent, then everything’s OK. TRULY PATHETIC.
And Treasury seems to have lost the plot with its weak support for fiscal consolidation because we might need to waste more taxpayer money if there is a downturn in the economy.
NO NO NO – the argument for fiscal consolidation is to:
- restrict government spending to core functions;
- ensure that the benefits of government spending far outweigh the costs taking into account the excess burden of taxation;
- ensure we retain our AAA credit rating;
- reduce the deadweight burden of interest payments on government debt;
IT IS NOT ABOUT SETTING OURSELVES UP TO BINGE SPEND ON POINTLESS ENDS (THINK SCHOOL HALLS, PINK BATTS) IF SOME GORMLESS GROUP OF BUREAUCRATS – LAPPED UP BY WILLING POLITICIANS – THINKS THE ECONOMY IS WEAKENING.
And as for Wayne Morrison’s equally pathetic assessment that the CPI indexation of the Age Pension was not a structural reform. Oh please. This was in fact recommended by the National Commission of Audit (as an interim measure before AWOTE was introduced as the indexation factor).
Actually, Wayne Morrison’s structural (sure) change to the Age Pension asset test and associated taper rate could go horribly wrong. Unless you are a couple who thinks they can save over $800,000, it looks perfectly rational to spend up and end up with around $300,000 in assets and take up the full Age Pension. Good one, Morro. This change alone is likely to cost the federal budget heaps down the track.
The reality is that Turnbull and Morrison are completely hemmed in by those 54 votes, mainly worried backbenchers who have no appetite for spending cuts of any sort and embrace wasteful local boondoggles like drug addicts embrace Ice. Think: roundabouts in Broome, upgrading local airports in Kangaroo Island, pointless new roads, etc. etc.
Here is David Uren’s piece:
Scott Morrison wants to transform the way the government’s economic performance is judged, with less focus on the budget balance and greater attention on its strategies to lift growth.
People should stop asking “are we there yet”, he told the media after releasing his budget update this week. The mid-year economic and fiscal outlook pushed the date of a return to surplus out by another year to 2020-21. Instead, he said, they should focus on the progress being made.
The credit ratings agencies have indicated they are prepared to be patient, giving the new leadership under Malcolm Turnbull at least until the budget next May to come up with a better-defined strategy to restore budget health.
But the message from Morrison, in an interview with The Weekend Australian, is that next year’s budget will not be dramatically different. The government will continue with efforts to restrain the growth of public spending, but the Treasurer does not believe it can cut its way to surplus,
He rejects the “king hit” approach to cutting spending, tried in the Abbott government’s ill-fated 2014-15 budget. “The suggestion that there is somehow one budget, or one MYEFO, or one big set of saves, or one thing like that, or package of things that is brought down at one point of time, which forever changes the course, well, I think the economy and our finances are far more complex than that,” he says.
Morrison believes the public will accept his more tempered approach to budget policy. “Australians understand that. They really do. Their finances are more complex than that, so certainly the government’s would be.” He rejects suggestions the government is not making progress in improving the deficit. The combined deficit for the four years to 2018-19 is $108 billion, whereas it was $132bn in the four years to 2017-18 and $157bn in the four years to 2016-17. “It’s been falling every year, the overall size of the cumulative four-yearly deficits, and so that says we are on the way,” he says.
But in a radical departure from the approach of his predecessor, Joe Hockey, Morrison suggests too much emphasis is placed on the return to surplus, noting deficits have been the norm for Australian government finances.
During the past 30 years, the average deficit has been 0.8 per cent of gross domestic product, whereas Morrison’s budget update shows the deficit falling to 0.7 per cent of GDP by 2018-19.
“My point is that the historical average is that the budget is in deficit to the point of 0.8 per cent of GDP and we are actually going to be better than that based on the current projections,” he says.
The historical average of a deficit is an entirely new benchmark. Morrison conveys no hint of the “budget emergency” language used by the Coalition in opposition. The Coalition came to office promising a return to the budget standards maintained under the Howard government, with former treasurer Peter Costello’s definition of a “strong surplus” of at least 1 per cent of GDP promised, in this year’s budget, by 2023-24.
In Morrison’s budget update, that goal will now be attained “as soon as possible”, but Treasury’s crystal ball, which sees no further than 2025-26, sees a surplus reaching just 0.2 per cent of GDP. That would vanish altogether with the next budget downgrade.
Morrison says he has little choice. To cut government spending hard would undermine consumer confidence. He is counting on household spending to sustain the economy next year. It is getting domestic growth going that will make the difference to government finances, not big cuts to public spending.
“Even if some of the more hairy-chested recommendations were taken up and there were three times the level of savings in (the MYEFO) statement than the $10bn that was announced, in terms of the impact that would have on the debt 10 or 12 years from now, well, it would be marginal. Because what is driving those debt numbers is largely what is happening with the parameters,” he says, referring to developments in the economy beyond the government’s direct control.
Morrison says he will not pursue cuts to government spending simply to improve the budget position, but rather as part of his overall mission to reform the economy.
He is critical of some measures attempted in Hockey’s 2014-15 budget, saying they were simply cutting spending rather than reforming the way government spent. He distinguishes between what he terms “shavings measures”, which simply trim costs, and the “savings measures” that achieve genuine reform. Citing the example of the attempt to cut the indexation of age pensions to consumer prices rather than the much-faster-growing male total weekly earnings, to which they’ve been linked since the Howard government, he says, “That wasn’t going to fly, it wasn’t a structural savings in terms of reform.” His approach was to look at the purpose of the age pension as a welfare support in retirement and address the eligibility.
“You’ve got to go for structural change in your spending. Savings are important but savings should deliver over time and really improve the performance of government programs and services.”
He readily concedes further work is required. On Treasury’s forecasts, revenue will be matching the long-term average from next year, but spending, even out to 2018-19, still will be far above average levels. Spending was heading for a record 26.2 per cent of GDP, exceeding the Rudd government’s stimulus spending, as recently as September when Morrison and the cabinet expenditure review committee first started looking for savings. It was a detailed process, with more than 180 individual measures, some small, but the cumulative result was to hold spending at last year’s level of 25.9 per cent of GDP.
Morrison wants people to focus on the government’s economic policies, whether that is Malcolm Turnbull’s innovation policy, the Harper competition reforms, infrastructure investment or the forthcoming tax white paper. It is these that will make the difference to people’s welfare and to the health of public finances.
“Economic policy is being made every day and governments have to be acting on that every day, not just twice a year in a MYEFO and a budget,” he says. “Budgets are points of reconciliation, they’re points of drawing things together, but the actual policies are the things that count; that’s what actually makes the change. And they happen all the time. One of the things we’ve got to get away from in, if you like, the new politics is these static point-in-time assessments as being the be-all and end-all of economic performance.”
But dictating the way people assess the government’s economic performance is not easy, as Labor found when it failed to win electoral credit for Australia avoiding recession in the global financial crisis, instead being judged for the blowout in the deficit and wasteful spending. Debt interest, now the fastest rising budget cost, is becoming a political issue.
Creditors, from whom the government will seek $90bn this year, care a lot more about the budget deficit than they do about innovation policy. For the moment they are happy to lend, but the longer it takes to restore the budget, the less flexibility Australia will have when next it does face recession.