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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

budget 2009 « Previous | |Next »
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.

BudgetLeaks.jpg

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.

| Posted by Gary Sauer-Thompson at 9:31 AM | | Comments (7)
Comments

Comments

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?

Peter,
George Megalogenis says that the resources-led surge in revenue between 2003-04 and 2007-08 will have disappeared by 2009-10 and - crucially - won’t come back in the next recovery. He adds:

What is clear with hindsight is that the Coalition wrote cheques to the electorate that would bounce once the mining boom turned to bust. It wasn’t the election tax cuts that broke the budget, but the combination of tax cuts and handouts in the final term of the Coalition.

The Coalition's economic credentials are rather tattered.

Access director Chris Richardson is in the news saying that massive spending cuts of around $25 billion a year are likely, and he has called on both sides of politics to face up to the big cuts that will be needed to get the Budget back into the black.

A federal Budget won't be sustainable until middle Australia feels plenty of pain in its hip pocket. Maybe we simply can't keep taxes as low as the promises that have been made to us.Even after the crisis is over, after the stimulus package is passed through, Australia will have a big Budget deficit..I would say we will have deficits until we have politicians with courage. And it will actually take courage on both sides of politics to repair the Budget.

He says that both sides of politics went to the last federal election promising unsustainable and unaffordable policies off the back of boom-time revenues. Now the boom is gone. He goes on:
As Warren Buffet has said, you never know who's swimming naked until the tide goes out.Well the tide has well and truly gone out on Australia's Budget and we have a big deficit even after the crisis is over.

Richardson is not confident that either side will be tough enough.Why not increase the revenue side?

Nan,
the budget has to get through the Senate. The LNP will say no. That leaves the Greens and the cross bench Senators. to pass it.

Nan,
Macroeconomics.com.au says

It appears to the outsider that the Rudd Government lurches from one day to the next without a policy framework, looking for the next political headline to grab, rather than seizing every opportunity to improve public policy outcomes. The sound bite is great, but the substance is lacking. Meanwhile public officials who could help provide the substance seem too fond of their new found influence. As the budget deficit widens (with no respite over coming years), senior bureaucrats (including Treasury officials) seem to provide tacit endorsement to low grade policy choices rather than articulating a bold reform agenda.

They say that now is the time to develop a consistent set of mean testing arrangements to apply to all government programs and to apply them to Howard-era welfare measures such as the child-care rebates, high-income superannuation
concessions, the Medicate safety net and the Private Health Insurance rebate.

So does this mean we will have an election before the next budget?

Les,
not likely. They have no reason to.