The Austrian economist Joseph Schumpeter, of ‘creative destruction’ fame, once said that ‘the budget is the skeleton of the state stripped of all misleading ideologies.’
Schumpeter’s words certainly ring true today, with the bare bones in the federal fiscal closet well and truly laid bare by the Abbott government’s mid?year budget update, to be released soon.
There can be no denying that Australia’s budgetary circumstances are in a parlous state, providing for a less than beautiful set of numbers that no amount of political spin can rationalise out of existence.
If leaked reports are anything to go by, the expected budget deficit for this financial year may have further blown out to $50 billion, compared with $30 billion about four months ago.
The government and the Greens (unwisely, in my view) bunker busted the statutory debt ceiling into smithereens, just before the fine print of the mid?year budget could reveal that federal gross debt will now certainly break the $300 billion barrier.
It is true that the Abbott government has played some role in the budget deterioration, including a handout to the central bank, doling out additional school funding to three jurisdictions, and deferring some spending cuts in the face of an extremely hostile, pre?changeover Senate.
But the greatest attribution for the horrific state of the books should be accorded to the policies of the previous government led, at various stages, by Kevin Rudd and Julia Gillard.
The basic policy idea was that, in the midst of a panic whipped up over financial market stability, arguably largely misplaced at the time, the public sector should borrow and spend to cover for any slowdown in private sector activities.
In 2008?09 alone it had been estimated that about $80 billion was spent on fiscal stimulus measures which would supposedly save the economic structure of Australia, at the temporary cost of a modest budget deficit and slight debt increase.
But the cost of Keynesianism is often far greater than what politicians wish to confess to the public, or even truly comprehend themselves.
The stimulus programs did not save Australia’s economic structure, but distorted it in favour of pet political projects of questionable economic value, such as overpriced school halls and flammable home insulation.
As official documentation during the stimulus period admitted, the government went on a borrowing spree to cover for tax and other revenues, which did not grow as quickly as the greedy political executive initially expected.
But with much of the modern commonwealth budget dedicated to consumption and redistributive spending activities, the increase in public debt has effectively entailed an erosion in our long term productive capital stock.
These problems, all other things being equal, will persist for as long as the budget remains in deficit, which in turn driven by the perverted bipartisan political logic insisting that increasing wasteful spending, rather than cuts to unproductive spending, delivers stronger electoral support.
Now the responsibility for fixing the federal budget emergency ultimately rests in Prime Minister Tony Abbott’s hands, who reassuringly tells us that the mid?year budget update is a line in the sand.
If the reassuring words are true, what that should mean is that the government will return to living within its means on a daily basis, and that the intergenerational plunder of indebtedness will not become a way of life for Australians.
Soothing words that appeal to the political base are one thing, but action to engage in fiscal consolidation is far more important. Not much has been seen on the spending reduction front, as yet, but much needs to be done, and quickly.
Abbott must become his own Man of Steel on the domestic front, battling against the throng of vested interests to deliver sound finances for the benefit of all Australians. The looming festive season aside, he would be best advised to don the cape, and graft out his own legacy as fiscal saviour, sooner rather than later.