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May 11, 2009
It is hard to avoid next Tuesday’s budget--well the selling the Budget as a Major Event----or the rhetoric of the Rudd Government that it has been mugged by the recession and rising unemployment. The leaks about the big collapse in government revenue, the big deficit, the cutting back on middle class welfare are everywhere in the media. Behind the media management stands the spectre of a generational problem of long-term unemployed coupled to industry's going off-shore. Layoffs, bankruptcy and closures will be the norm.
In the background, despite the upbeat economic messages from the Reserve Bank, the future looks rather austere. It is one of lower levels of growth, less advantageous terms of trade than those to which the miners have become accustomed, and the decline of some industries. Government spending has skyrocketed and projected receipts have plummeted, and it will take many years for revenue to recover sufficiently to ease the structural deficit and return the budget to surplus. That will only realistically happen with a substantial increase in the tax revenue share of GDP.
Let's accept the above account an downgrade the budget from being a Major economic Event and go behind the media stage management. We can ask: does the Rudd Labor Government have a long term strategy beyond saying that the current financial mess is caused by the "global financial/economic crisis" and that downturns call for budget deficits? Does it have a policy framework that links budget cuts and the shorter-term stimulatory measures with longer-terms goals and objectives, apart from an economic stimulus for the short term and sacrifice for the long term.
What are the longer term goals? I do not see a coherent policy framework. Quarry Australia still stands supreme coupled to corporate welfare for the car industry and heavy polluters. The spending on skills and training to avoid future supply bottlenecks is about the trades, rather than a generous response to the Bradley review into higher education, tied to further improvement in how universities operate.
There is little recognition that the arts and creative industries are increasingly being recognised as anchors for economic development, or that universities are the engine rooms of science and innovation, when appropriately linked to incentives to commercialisation.
The rhetoric is one of highlighting the importance of research, innovation and international collaboration to the nation's social and economic wellbeing, especially in this age of economic gloom and doom. It says that the traditional emphasis on structural adjustment is due for reconsideration, and the emphasis should shift to innovation capability and performance and on capability building in firms, with a view to the development of a knowledge-intensive, high wage, high productivity sectors.
However, the talk does not translate into the walk. In contrast to the car industry, there looks to be very little funding to help prime the drying liquidity pump from which promising innovative information and communications technology, renewable energy and biotech start-ups normally drink.
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The Coalition will use the budget to its natural constituencies and lock in its political base. It's constituencies, in Howard's language, are small business, aspirational families and senior citizens, including self-funded retirees.
Does standing up for that political base mean more attacks on the unemployed?