In his 2013 book, Glory Daze, Jim Chalmers described his “enthusiasm” for getting the budget back into surplus within Labor’s hoped-for next term of government.
It was 2010 and Chalmers was Treasurer Wayne Swan’s chief of staff. He wrote the book having packed a cardboard box and vacated his office after the 2013 election, which Labor lost but Chalmers won, becoming the Member for Rankin in Brisbane.
Preparing that 2010 budget with Wayne Swan was a happy time; he wrote that it was their first budget in “a climate of cautious optimism”.
Europe was on the edge, with Greece having to be bailed out (again), and the US Federal Reserve was into its third round of money printing to support the flagging American economy, but commodity prices were booming thanks to China’s post-GFC fiscal rescue, and as a result Swan and Chalmers were able to produce a budget that was fiscally responsible with surpluses in its future.
That budget in May 2010 predicted a surplus of $1 billion in 2012-13, and $5.4 billion in 2013-14.
But the most important thing, wrote Chalmers in his book, was “we would be doggedly sticking to the strict rules we had set ourselves, limiting public spending as our economy recovered and banking the improvement to the bottom line”.
But two years later the treasurer and his chief of staff were doggedly munching humble pie because it was clear there would be no surplus on their watch, ever.
Chalmers writes about his admiration for Wayne Swan’s handling of that terrible press conference: “He admitted the politics were bad, and they were, but he also made the case for why the economics were good, and they were”.
In the event, there was a deficit of $21 billion in 2012-13 and $52.5 billion in 2013-14, so Tony Abbott was able to win the 2013 election with a frenzied, brutally effective campaign focused on Labor’s “debt and deficits disaster”.
Chalmers’ sole budget job
On Tuesday, Jim Chalmers will bring down his own budget as treasurer.
Beside him has been his chief of staff, Claudia Crawford, who was with him in Wayne Swan’s office when they were preparing that ill-fated 2010 budget (before heading to Harvard University in Boston and then the New York Economic Development Corporation).
The good news for them is that Josh Frydenberg’s four budgets were wildly wrong: Treasury’s fault, not his, but in Frydenberg’s first budget, in 2019, surpluses were forecast forever, and then in the next three pandemic budgets the forecast deficits were way too big.
Even in March this year, Frydenberg’s last budget said the deficit for that year would be $79.8 billion. It turned out to be $32 billion, an astonishing miss with only a couple of months of the year to go.
Anyway, Jim Chalmers has inherited an improving bottom line from which he must subtract Labor’s $18 billion in election promises. That is the sole job of this week’s “budget” (it’s not really a budget, but simply a reforecasting of the economic parameters and a reconciliation of the promises).
Frydenberg’s March budget predicted $224.7 billion of deficits over the next four years; Deloitte Access Economics says that will now be $179.1 billion.
The difference is $45.6 billion. So, all else being equal the statement/budget on Tuesday could add the $18 billion in promises and still boast a $27 billion improvement in the budget bottom line over four years. Happy days are here again.
As Chalmers well knows, the global economy can teach you humility, but in any case, he would do well to finish the story that his old boss Wayne Swan started but, being a rabbit in the headlights at the time, couldn’t finish.
It is that deficits and surpluses are about politics, not economics.
Since 1970-71, there have been 36 deficits totalling $795 billion and 17 surpluses totalling $176 billion.
If deficits were an economic problem rather than just political, Australia would be in serious economic trouble, and Japan would be in worse trouble, having had nothing but huge deficits for 30 years.
But they’re not, and we’re not.
“Deficits” and “debt” are actually the wrong words – the number simply represents the amount of government spending financed by bonds instead of taxes.
The “deficit” is not a loss, like a company’s, but represents the money the government is injecting into the private economy. The bonds are private savings to be returned later rather than taxes that citizens only get back as government services and pensions.
Wrong way, go back!
Yes, I hear you say, but what about the interest? Well that’s just a further annual injection of cash into the private economy, usually financed by more bonds, and anyway almost half of it now goes to the Reserve Bank, which comes back to government.
Last month Jim Chalmers said this week’s budget would be “the beginning … of a big national conversation about our economic challenges (and) the structural position of the budget going forward …”.
Good. But he has got off to a bad start by whinging about the debt and deficits he has inherited and telling us in his July economic statement that “interest payments on government debt will be the fastest-growing area of government spending – faster than the NDIS, aged care and hospital funding”.
Wrong way, go back! The amount of government spending, and how much of it is funded by taxes or bonds, is far less important than what it’s being spent on.
That’s been demonstrated by the destruction of UK prime minister Liz Truss and her hapless chancellor Kwasi Kwarteng. It wasn’t the increase in the deficit that did it – it’s been bigger before – but the fact that the money was being wasted on unnecessary, ideological tax cuts.
Chalmers keeps talking about the five areas of government spending that are causing problems – NDIS, aged care, health, defence, interest. (He could also add climate change, preventing it and dealing with it.)
The first four of the items on his list represent good, necessary spending, and the fifth is simply a function of the other four.
Politicians, especially conservatives, but also economically literate lefties like Jim Chalmers, too often take the easy path of hammering their opponents with debt and deficit.
Chalmers is about to bring down a budget that has no surpluses in the forward estimates, only deficits and debt.
His “big national conversation” needs to be about why that’s OK, and a good start would be to stop whingeing about the debt and interest. Instead he should channel Wayne Swan’s line that “the politics were bad, but the economics were good”.
He was right.
Alan Kohler writes twice a week for The New Daily. He is also editor in chief of Eureka Report and finance presenter on ABC news.
