Snap back to what? We need a steady march to reform


Throughout, with the exceptions of the conspicuous periods of largesse under Whitlam and Howard, budgets have been mostly driven by varying degrees of austerity while seeking to avoid new taxes, although there has been a significant reliance on “bracket creep” in personal tax.

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On the brink of achieving the cherished budget surplus – of being “back in the black” – the impact of COVID-19, the Morrison government has launched fiscal measures worth almost $200 billion so far, about five times the Rudd packages in response to the GFC. Then there is almost a $100 billion liquidity injection from the RBA on top of a near-zero cash rate.

Scott Morrison would have us believe all this is temporary, not structural, and that we can “bounce”, indeed “snap”, back when the virus is under control. But snap back to what? And how quickly?

We already had a weak and weakening economy, riddled with significant structural challenges, low business and consumer confidence, record household debt, flat wages, increasing job insecurity, low productivity and a majority struggling to meet a mounting cost of living? Not to mention neglect of the longer-term imperatives such as the transition to a low-carbon society over the next three decades?

But what exactly will suddenly give households the confidence to spend, and businesses to invest? Or will government spending have to keep sustaining growth, and if so how will it be paid for? The prospective blowout of hundreds of billions in the budget deficit, and national debt, dwarfs anything since World War II. It will take decades to bring under control.

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This on top of what were already a host of unfunded commitments – Gonski and education, health, defence, the NDIS, infrastructure, and the legislated tax cuts. Former finance secretary Mike Keating had been predicting an inevitable increase in the overall tax burden of some 2 to 3 per cent of GDP in the 2020s.

It will not be possible to stick with commitments to magic budget numbers. And we’ve learned just how long it will take to restore unemployment rates (likely to at least double) to near-full employment.

Does Morrison imagine it will be easy to snap back from having increased the JobSeeker allowance or providing free childcare, or to avoid pressure to convert his JobKeeper payments into a universal living wage? Can he accept many businesses will still fail? Howard found out just how tough it could be to take back what was given as a benefit, against the expectation that it had become a right.

Lessons too from Tony Abbott’s attempt at extreme austerity, especially without effective consultation, that culminated in his failed 2014 budget.

Morrison has no alternative but to shift gear into longer-term strategic planning, and to reassess national priorities right across government, industry and civil society, and in our global relations, especially with the US, China and our Asia-Pacific neighbours.

This should lead to broad-based tax and reform of expenditure and the federation. More tinkering will be inadequate.

Big trade-offs will need to be made, such as scrapping submarines and expensive and ill-considered defence procurement, in favour of important social programs. Infrastructure bonds could make an effective distinction between debt for recurrent spending and that for self-financing capital. We could eliminate or containing expensive and inequitable tax concessions. We should broaden the tax base and scrap profit as the basis of corporate tax. We need better tax arrangements between the federal and state governments and a re-allocation of spending and policy responsibilities.

My fear is that the economic disruption and poor growth will last much longer than expected. Without a longer-term strategy, the government’s packages will only serve to compound our debt problems, leading to an ultimate debt crisis.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.

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