Another bloody budget commentary anyone?

I wasn’t going to post this Courier Mail column as I agreed with Andrew Leigh’s criticism of it that it didn’t say much about the budget! But prompted by Peter Browne’s request to post it on APO, I re-read it and thought it was quite good! (I don’t always think that when I return to my own work I promise!)

In any event, it did allow me to publish an anecdote that I think is very telling and about which I was really angry at the time. It regards the way in which the urgent crowds out the important and accordingly how we so often generate substance from form rather than vice versa. The particular piece of policy making that it is about is the megalomaniacally entitled “One Nation” statement. When we were told of its propaganda name just a few days before it was delivered, I called it “Ein Reich” which didn’t endear me to anyone much I’m afraid :(.

Anyway, here it is over the fold.

Spent of ideas

Habits form and help make our lives more relaxed and comfortable. But this budget’s a bit too relaxed and comfortable.

Our economy has been through a record era of growth which has been the result of a generation of economic reform, masterful monetary management, China’s insatiable appetite for various kinds of Australian dirt and good luck.

I was one of a group of six economists warning of the danger signs during the last election. Record and growing trade deficits, emerging skill shortages and infrastructure bottlenecks, business expenditure on training and R&D still a lower share of the economy than it was ten years ago.

In the Government’s first major economic statement since the election after which these problems have only intensified there’s an eerie silence about them all. Just more cash to spend.

I witnessed a similar lack of direction inside a government of about the same age, but of the opposite political persuasion. You may remember Paul Keating’s unfortunately titled economic statement “One Nation”. It sought to fight a savage recession with increased deficit spending.

With the exception of its first few months in office, the Government had spent its time paring back government spending which it had done with flair, fairness and fortitude. It was in the groove. That was the trouble.

When I joined the new Treasurer’s staff in the dying days of 1991 I was expecting something like Churchill promised his country when he took over in an even graver crisis: “Blood, toil, tears, and sweat”.

But, having taken over a year to finally put Prime Minister Hawke to the sword, the new leaders were exhausted. Like a pride of lions napping through the heat having gorged themselves on a fresh kill, the pollies went off for Christmas.

Automatic-pilot beckoned. When we returned to put the statement together I was struck by the fact that, though there was a mountain of paper about this policy or that, there was no paper seeking decisions on the most basic strategic question. How much more money should we pump into the economy?

Instead, departments put submitted spending proposals to the familiar and exhausting scrutiny of the ERC the Expenditure Review Committee of Cabinet. The ministers representing the Departments of Finance, Treasury and Prime Minister and Cabinet were all very experienced and capable operators in the ERC. That was the problem.

After the process had run its course it was clear that the ERC had knocked off too many spending proposals. The grand change in direction for which the Government had been paralysed for over a year was amounting to not much more than $1 billion then a fraction over one quarter of one percent of the economy.

I was summoned via an extraordinary and cumbersome new device which worked pretty much like a phone but which could be lugged around in your brief-case. We needed to find a way to spend at least another half a billion!

That is a microcosm of what’s been happening within the Howard Government. Its been happening every six months for four or five years. Unlike Mother Hubbard, each time Mother Howard has gone to the cupboard he’s found that far from being bare, the cupboard has another few billion dollars sitting in the forward revenue estimates.

There are good reasons for thinking that this budget may be the end of the line for Old Mother Howard’s magic cupboard. There are growing concerns about the inflationary consequences of growing skill shortages, infrastructure bottlenecks are slowing us down and at least part of the reason for projected increases of revenue comes from improved forecasting methodology. So to the extent that forecasting has been improved this has removed the scope for further systematic happy surprises in the future.

In the meantime, each time the revenue estimates have blown out, the Government has improvised some more or less sensible way to hand it back. Tax cuts, $100 cheques here, $200 dollar cheques there. It’s bought short-term popularity, but tens of billions of dollars could have bought that and much more. It could have been invested in the next economic miracle not spent.

The one ‘structural’ theme in this budget is increasing the work participation of single parents with school age children and people with relatively minor disabilities. This ‘tough love’ will help or hassle some people into employment and out of poverty and welfare dependence. So it’s welcome even if better funded carrots to go along with the sticks might reduced the contrast with $4,500 a year tax cuts for those earning $125,000.

And will the jobs be there? However sensible in principle, its not the absence of these people from the labour market relatively unskilled as many of them are that’s holding us back. Meanwhile there’s an eerie silence about what really ails us skill shortages, infrastructure, R&D, exports.

There’s no great cause for alarm right now. But I keep thinking of that plane that few into Mount Erebus. Wasn’t it flying on auto-pilot?

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2022 years ago

No, the plane that flew into Mt Erebus was not on autopilot.

A correction to the coords of McMurdo station in the plane’s nav computor was made the night before the flight. The crew were not briefed on the change. Thus they were actually 30 miles south of where they thought they were.

Dave Ricardo
Dave Ricardo
2022 years ago

Your reaction to the name ‘One Nation’ was unfair. One Nation was a counter to John Hewson’s ‘Fightback’ which sought to portay an image of ‘them’ and ‘us’.

It was also an allusion to the One Nation Tories, a group which became extinct in the Thatcher years, but which existed to counter-balance the hard right class warriors of the Conservative Party whose mission was to advance the interests of the upper-middle class at the expense of the working class.

David Tiley
2022 years ago

“The one ‘structural’ theme in this budget is increasing the work participation of single parents with school age children and people with relatively minor disabilities. This ‘tough love’ will help

Ken Parish
Ken Parish
2022 years ago

David

Personally I have slightly mixed feelings about Costello’s welfare to work stick minus the carrot approach. On one hand, it is undoubtedly the case that many if not most single parents of school aged children COULD work (and could probably find jobs in many cases), and would probably themselves be benefitted both financially and experientially by doing so. Moreover, there is no compelling reason IMO why the taxpayers should pay them to stay home watching “Days of Our Lives” while the kids are at school.

OTOH it may be quite difficult to find actual jobs whose hours fit in with the demands of caring for one’s kids before and after school (even with the expanded funding for before and after school care).

And, as you say, it’s one thing to say that people with disabilities and those over 50 COULD work in theory, and quite another to find an employer in a competitive job market who is prepared to actually offer a job to a person on those categories. In many cases, the only practical effect of the new rules will be to harrass older Australians and people with mild disabilities into wasting their time and demeaning themselves by traipsing around applying for jobs that they have no real chance of ever being offered. It’s cruel and mean-spirited, even if it does play well to talkback radio listeners and the aspirational middle class.

John Morhall
John Morhall
2022 years ago

It seems to presume that there is valuable and meaningful work to be done, and that there is an availability of such work within the economy. I fear that this could be input driven, rather than geared to achieve outputs. If the work performed involves a greater amount work to manage at a higher cost premium it most likely has a negative value. I agree with Ken that it is nasty and mean spirited but also it seems fundamentally flawed in realising output value IMO.

David Tiley
2022 years ago

Gianna just nails everyone’s disquiet in one lucid burst.

http://she-sells-sanctuary.blogspot.com/2005/05/so-much-for-us.html

Nabakov
Nabakov
2022 years ago

Good point Nick G. These guys have had around nine years with their hands on the macronomic levers, riding an well executed economic legacy and catching some lucky geopolitical breaks.

Now the whole world’s coming to a globalised boil over geo-political resources games, aging western populations, environmental pressures, franchised and internet enabled terrorism, accelerating new and very disruptive technologies, the rise of the BRIC and their remora fish and an industrial-entertainment complex that’s now being led around by nothing but it’s own nose.

And what do they come up? A Budget with all the practicality, charisma and long term impact of an overused wettix. Good for me. I’ll can lash out and upgrade to Tiger this weekend to celebrate my tax cut. But if yer not a pushy healthy male like me, then you better starting becoming one real fast ‘cos apparently that’ll now be the benchmark for getting a fair share of your taxes back.

Meanwhile the future is turning into the present faster and faster.

Australia’s still in many ways a nation of surfers, bushwackers, hackers, tinkerers, fast talking money boys, brillant medicos and musos, bush mechanics and CAD/CAM craftspeople, empire building immigrant families, and we have one of the world’s smartest, toughest and most colourful sports machines, the world’s most proven biowarfare capability (see a rabbit lately?), world-class drinkers, rooters, perverts and underworld figures, and we are internationally respected warfighters and peacekeepers while also hosting the planet’s biggest pink pissup.

And yet there is not one iota of thought in this budget about how to encourage and support a future where what we do best will make us do well. But hey! They are funding the future after all. The Future Fund! Run by a hot new team of public service fund managers and account executives playing the same market they couldn’t get private sector jobs in.

And Peter, remember it’s infrastructure not policies people remember after the pollies have gone. Would you rather be the Bolte Bridge or the Harold Holt Memorial Swimming Pool? About now yer the Peter Costello Lilo.

Mindy
2022 years ago

Ken – I agree that people shouldn’t be paid to sit at home and watch the soapies, but we desperately need affordable childcare so we can work. I was offered a P/T job, but couldn’t take it because it didn’t pay enough to cover my childcare costs. I’m now working full time and so I can pay childcare and still have some cash left over. But that doesn’t compensate not having time with my son. Here in Alice my childcare costs about $60 less per week than my girlfriend in Sydney pays for her son, and that was the cheapest childcare she could find. She pays $250.00 per week for him to go to full time care. So if she were a single mum, she’d have to find a job that paid pretty well to afford childcare, rent, utilities, food etc. And if she were unskilled what chance would she have?

Hanrahan
Hanrahan
2022 years ago

We will all be gruened!

Nicholas Gruen
16 years ago

Many years ago when I was working in a Minister’s Office in Old Parliament House, one of the other staffers (Geoff Evans) began a limerick:

There was a young fellow called Gruen
Who was going to rack and to ruin

He never finished it sadly.

John Quiggin
John Quiggin
2022 years ago

I used the same rhyme in a song for your father – I think it must have been when he retired (officially, though in reality he stayed on) from RSSS

Nicholas Gruen
2022 years ago

David,

I confess to being underwhelmed by Gianna’s attack on activity testing of mothers with kids who are school age.

I don’t know her circumstances, but I don’t go for the self righteousness. She’s taking my money and using it to help bring up her kid. Well, that’s OK, but only because the alternative is worse – ie her kid goes without. But its not a great situation is it?

I don’t think its a situation in which one should feel self righteous. So the state turns round and says to her that after she sends her kids to a school it wants her to do what she can to get some work – even God forbid “15 hours a week as a lowly paid casual at the local chip shop”. Now it may be – as she says – that this is pretty economically irrational in her case – as her last job was with a big corporate law firm. So the child care ends up costing as much as her wage. But it doesn’t seem immoral.

And it doesn’t seem a kick in the guts or demonisation. It seems that the community is trying somehow to assert what used to be a strong social norm – you look after the kids you have and if you can’t, you wait till you can – you don’t palm the burden off onto others. That’s not a norm that should lead to the cessation of welfare payments for single parents, but it doesn’t strike me as shocking that it leads to activity testing and the assumption that single parents will do what is possible to support themselves.