As we approach Tuesday’s federal budget, the economic situation is one in which Labor supporters ought to be looking forward to some major progress. Australia has effectively reached full employment (when there are roughly as many employment vacancies as jobseekers) for the first time in 50 years. As a result, the number of recipients of JobSeeker benefits has fallen sharply, meaning the cost of increasing those benefits is less than it has been in many years.
Windfall tax revenues have returned the “headline” budget starting point to surplus. In real terms, the situation is even better than that. Because the rate of interest on public debt is below the inflation rate, the real value of debt is declining automatically. The ratio of public debt to GDP is falling even faster, and is far below the level considered acceptable in most developed countries. The sharp increase in the debt-GDP ratio — foreseen as recently as a year ago — now looks modest, if it happens at all.
The government has flagged some increases in resource rent taxes that will improve the budget position a little further. There is plenty of room to raise more revenue, thanks to the failure of the previous government to close loopholes. Superannuation concessions, negative gearing, franking credits and a wide variety of tax rorts could be closed off, allowing us to meet vital needs in health, education and aged care.
Most importantly, the picture would change radically if the budget included a progressive reform of income tax scales, to take effect in 2025-26, after the next election. This would keep faith with the 2022 promise to implement Morrison’s stage three tax cuts on schedule, and let voters decide whether they want to make them permanent.
We will see nothing like this. In rhetoric that smacks of deception, self-deception or both, the government has hyped up the increase in nominal interest payments as a major burden on the budget. This in turn is a reason for failing to meet basic needs (although $240 million could be found for a vanity stadium project in Hobart).
The budget measures floated are the kind we might expect from a tired conservative government that has run out of ideas and is trying to buy some time. To see them as the leading measures in the first full budget of a new Labor government is truly depressing.
This is most obvious in relation to JobSeeker. Needing independent Senator David Pocock’s vote for its industrial relations legislation, the Labor government resorted to the favourite expedient of a tired government: establishing a committee. But when the grandly named Economic Inclusion Advisory Committee came back with an answer everyone expected — that JobSeeker benefits are too low to live on — the government reacted with shellshocked surprise.
After a string of leaks suggesting that an increase would be too unpopular to countenance, there was a retreat to a half-baked compromise, providing an increase to people over 55, who presumably can’t be stigmatised as undeserving. Similarly half-baked is a proposal to partially reverse the Gillard government’s decision to push single parents onto JobSeeker.
Then there’s the “energy bill relief”. The fact that real wages are falling is a major economic problem. But rather than address the actual issue, the government has promoted a framing in terms of “cost of living” pressures, tying it to last year’s disruptions in energy markets, which are still feeding their way into electricity bills. The response is a convoluted system of handouts, packaged into reduced electricity bills.
A short-term handout is rarely an optimal response to economic problems, except when it is needed as a stimulus to slumping demand. But if one was needed, the government could have followed the example of its predecessors and extended the low and middle income tax offset for yet another year. Such a measure could have laid the basis for a proper reform of the income tax system, including modification of the stage three tax cuts.
There’s still time for a turnaround. The leaks we have seen so far may turn out to be nothing more than test balloons. But so far, this government has been one that regularly disappoints its supporters, even after preparing for disappointment.
