The Turnbull Government and Shorten Opposition are lying to you, me and the fence post over their long-term plans to get the Budget back into shape.
The lie is laid out in the Government’s own Budget papers and in the Opposition’s promises.
And it’s time they were both called out.
The starting point is the current Budget deficit which, this year, is likely to be about $20 billion. A similar-sized deficit is expected next year.
Those deficits will be the 10th and 11th consecutive fiscal shortfalls since the last surplus.
Combined, the deficits are the reason for the record $514 billion in debt owed by Australia to its creditors.
In the latest midyear Budget update, Treasurer Scott Morrison pointed out that gross debt would be about $40 billion lower than had been anticipated when the Budget was released in May.
What he didn’t point out was that gross debt was still climbing over the short and long term. His own Budget papers show gross debt headed towards a record $700 billion by the middle of next decade.
Gross debt keeps climbing because the Government is having us on about its own long-term Budget plans.
The Government has what it calls a “Budget Repair Strategy” which, on page 31 of the most recent Budget update, lays out this commitment.
“The Budget repair strategy is designed to deliver sustainable Budget surpluses building to at least one per cent of GDP as soon as possible, consistent with the medium-term strategy,” it states.
But just a handful of pages before it makes this declaration, the Budget papers show its projected deficits and surpluses over the next decade.
This shows Budget surpluses never getting close to the one per cent commitment shown in the “strategy”. They get to a touch over 0.3 per cent of GDP and then stay there. In other words, the Government manages to promise a Budget repair plan and break that promise all within four pages of its own official fiscal document.
One of the reasons is that the Government is tied to a commitment to keep its overall tax-to-GDP ratio below 23.9 per cent.
The graph showing mediocre surpluses, that fail to pay down gross debt, is predicated on not breaching that 23.9 per cent target.
While the Government says its commitment is to larger surpluses, its actions — and its own Budget papers — say the opposite.
Labor’s lie comes, not surprisingly, with tax.
It actually set the 23.9 per cent tax ceiling more than a decade ago, before the 2007 election, as part of its successful campaign to paint the Howard government as a high-taxing bunch of drunken sailors with a spending problem.
Then the GFC hit and it was the lack of tax that was a problem. For the first time since the Great Depression, tax receipts fell in absolute terms for two consecutive years.
That was then.
Now, Labor has announced a string of tax policies (such as its plans to finally end the rort that negative gearing and the concession on capital gains tax have become).
But those tax policies will, even by Labor’s own numbers, take the amount of tax going into Canberra’s coffers well above the 23.9 per cent target. It’s why Labor, during the most recent election campaign, was able to say it would deliver bigger surpluses than the coalition next decade while also delivering more services.
Magic numbers in their own projections gave them more money to spend.
While it focused on the size of the surplus — which is not a bad thing — the ALP is ignorant of what its grab bag of tax policies may do to the entire economy.
For instance, the Budget projections suggest a surplus of about $6.2 billion in 2026-27. Under Labor’s own policies, that surplus would be closer to $20 billion.
While that may help pay down gross debt, there’s no discussion about what that extra $14 billion in tax might do to the economy.
As the recent Productivity Commission report into the banking sector showed, proposals with the best of intentions can have major unintended consequences. In this case, it was the Government’s decision to get banks to tighten lending standards for investors that has delivered a $1 billion windfall profit to the banks but which will also cost taxpayers $500 million because of our negative gearing laws.
There’s another risk from the Government and Labor fiscal positions.
They are all predicated on nothing going wrong.
Before the GFC, Treasury wanted the Howard government to actually run bigger surpluses (and not hand out so much cash to middle-class Australians) because it feared an economic shock would leave the Budget in real trouble.
That shock delivered in spades via the financial crisis. And the Budget is, a decade on, still in trouble.
Shocks don’t have to be major to ripple through the Budget.
Treasurers Swan, Bowen, Hockey and, until now, Morrison have all benefited from the sharp fall in interest rates on government debt.
If interest rates had been steady over the past decade, the interest bill on our current debt would be more than double — around $40 billion this year rather than a touch under $18 billion.
Just since the December Budget update, Australian government interest rates have gone up. And on our debt, that increase will widen the Budget deficit over the next three years by close to $1 billion.
If global interest rates go up further (which is a risk given Donald Trump’s unfunded tax cuts mean the US is going to flood the global bond market with $US1 trillion a year for the next three years), then our interest bill will be even higher.
All of this is serious because Australia is so fiscally exposed.
If higher interest rates in the US lead to a recession there, or if the Chinese Communist Party’s addiction to debt-fuelled growth has its reckoning, or house prices crash in Sydney and Melbourne, the Budget won’t be in a position to withstand the onslaught.
Both sides of our political fence need to ‘fess up about the longer term issues facing the Budget. It really is time for some fiscal truth.
Source : The West Austrailian