ECONOMY: by Colin TeeseNews Weekly
Where the Budget leaves us
, May 31, 2003
It's easy to imagine that once the dailies and the Australian Financial Review have combed over the budget, there is nothing more for a journal like News Weekly to consider.
Actually that is not so.
Essentially, the orthodox media tend to get bogged down on what is likely to make a headline. Older readers of this journal will recall the days when, on the morning after budget night, the headline frequently was - except in an election year - 'smokes, beer up'.
In those times, the easiest way for governments to raise more money for the purposes of government was to increase the tax on so-called inessentials like cigarettes and beer.Cutting services
In those times, there was no question of cutting services to bring the budget into balance. Then the practice always was that the money needed to run the government must be raised, and that indirect taxes on discretionary consumption was the softest option.
Not that there was ever unanimity between the major parties on this particular soft option. Labor always said that beer and cigarette taxes hit the working man - which they did - and that the government should increase taxes against business.
But that was a debate about ways and means of raising the money. Not at issue was the fact that money was needed to fund the legitimate purposes of government, and that the tax base should generate it. And legitimate purposes included - among other things - the provision of services like health and education and pensions. Beyond those they sanctioned taxes to sustain interventions in the functioning of the economy in order to insure, among other things, full employment and the means of achieving it, along with recognition of the need for ordinary people to have a wage necessary to support and raise a family.
Unhappily, these provisions are no longer considered to be part of the context within which budgets are framed. And, just as previously there was agreement between the parties on the need to raise enough money for government to provide necessary and desirable services, so has there been - in recent times - agreement between the parties to curtail services rather than tap deeper into the tax base in order to support them.
And whatever governments may assert to the contrary, when it comes to the measure of prosperity, the value of government-provided services to the less prosperous in our society is an important - though presently ignored - element in the measure of prosperity.
But for all the talk of politicians, and for all the cutting into spending on services in this budget, in particular, along with many of its predecessors of the past two or so decades, the publicly stated purpose of control of expenditures is largely fiction.
Spending today is greater than ever before, and the question to be asked is whether it is being spent wisely, and, more importantly still, is its purpose the service of genuine national interest rather to satisfaction of naked political or special objectives?
None of the media has addressed any of these issues seriously.
On close examination, it turns out that this present Howard Government is the highest-taxing government in our history, though the Treasurer strenuously denies that assertion. The facts, however, suggest otherwise.
And, we should not be surprised. The neo-conservative policy, developed by Mrs Thatcher in Britain - and upon which the Howard political philosophy is based - also claimed to be the lowest spending. It, too, turned out to be the very opposite.Tax collection
In an effort to conceal the true state of revenue collections in the present budget, the numbers are, to say the least, misleading. As to collections, nowhere is the $30 billion of GST collections shown, even though this is a tax harvested by the Commonwealth. And for good reason. If it were included, the Commonwealth would be revealed as collecting, not $172 billion, but some $200 billion.
The argument of the Government is that the GST collections are not Commonwealth revenues. They are collected by the Commonwealth on behalf of the States to whom they are passed on in full.
There are many reasons why these claims by the Commonwealth are flawed. One is that the money is not divided up between the States in strict accordance with revenues collected in each individual State. A correction formula exists to increase disbursements to smaller States. Accordingly, Victoria and New South Wales get less than their full share.
There is, however, a more important consideration.
It would only be possible to claim that these are genuine collections on behalf of the States if they represented sums additional
to the monies paid to the States before the GST was introduced
As to other taxation matters, much has been made of returning to taxpayers $2.4 billion in the form of income tax cuts. While in percentage terms the cuts are weighted in favour of the lower-income groups, the actual amounts distributed are, in reality, derisory.
Worse still, they are more than offset by the amount of additional tax collected from low income earners as inflation induced wage increases nudge them into higher tax brackets. In effect, the government is giving back to those taxpayers, slightly less than the additional amounts it is collecting from them. Some concession!
Now the budget also provides the occasion for the Government to discuss not only the current state of the economy, but also its future plans for it. Much is made of its forecasts for the immediate future. Indeed the detail of the budget is said to be underwritten by just these considerations.
Understandably, the Government will be at pains to present its assessments of the immediate past and future of the economy - which are really Treasury predictions with a political overlay - in the best possible light. On the basis of the presented data this proves to be a more than usually difficult task.Consumption
Domestic economy forecasts suggest that household consumption is likely to fall, though not significantly. On the other hand, dwelling construction which rose by 18 per cent last year is expected to fall by 5 per cent in the coming year. Surely such a huge fall in dwelling construction must impact on household consumption more seriously than the Government suggests? And this is especially so, as elsewhere in the Budget the Government admits that the weaker housing market will directly affect employment.
Exports are predicted to grow by six per cent in the coming year compared with zero for last year. Against that, imports, which grew by 13 per cent last year, are expected to grow by a mere six per cent next year.
Fine. But given the amount by which the A$ has risen against the US$, is there really good reason to predict that exports will perform so much better than last year? Would it not be at least as likely that this year's exports could fall rather than rise?
Certainly the Government's expectation of a further slight rise in the current account deficit suggests that.
As to unemployment: growth is slowing and yet the expectation is that unemployment will not rise above its current officially calculated level of six per cent.
We all know that the real figure for unemployment is much higher than the Government claims and that this is one of the tragedies of modern Australia.
Speaking of the present budget, many commentators have called it 'clever', in the sense that it boxes in the Opposition by spending all of the available cash surpluses.
But that is so only if only if the current Leader of the Opposition follows the lead of his predecessor in two successive elections, and allows himself to be boxed in.
But supposing Mr Crean declines to take the Government's bait. Suppose he moves slightly left. The government feels he dare not, but surely the opportunity is tempting. Mr Crean's party is dead unless he can produce policies which the electorate wants and which differentiate Labor from the Coalition.
The question is: does Mr Crean have any other option? By a strange irony, a combination of Labor's plight and Government tactics might impose on Mr Crean a boldness he would not otherwise embrace.
Mr Crean might just have the courage born of desperation.
If he does, there is plenty of scope to scrap some of the Coalition's policies in favour of some of Labor's preferred positions. For example he could discontinue the present $2 billion of government subsidy to private health funds and use it in more effective ways.
And the heavy public funding of private schools deserves examination. Without in the least touching the funding to the Catholic sector - which should be regarded as if it were part of the government-funded schools - Labor could cut back on the funding to elite private schools and redirect the saving into the public sector.Unemployment
Most important of all, Labor could begin to focus seriously on unemployment. This could be really telling in a policy sense because the Government appears to assume that unemployment isn't a problem, and that the official figure of around six per cent is quite OK. Labor could develop a perfectly feasible plan to reduce unemployment based upon the rebuilding of Australian manufacturing industry policy.
As things stand, we are well below the level of manufacturing industry in our economy compared with others in the OECD.
Revitalising manufacturing activity could help create new jobs, get welfare payments down, increase the numbers paying income tax, and bring down the deficit on the current account - all in one hit.
The opportunities are there for Mr Crean, and it is just possible, judging by his budget reply speech, that he might be thinking in the right way. If he is, then the Government's budget strategy might turn sour. We could see a time when the Government will be hoping that Mr Beazley will replace him.
- Colin Teese was Deputy Secretary of the Department of Trade