One of the most significant failings of the Howard government was the way it squandered the significant budgetary benefits, the revenue windfall, of the resources boom.
Rather than sock away some of the unexpected boost to government revenues that resulted from that boom in say a “Sovereign Wealth Fund”, to be drawn on in more difficult times, they spent it on tax cuts and wasteful spending such as the Baby Bonus. You might recall Treasurer Costello’s ill-conceived chant encouraging babies – One for Mum, One for Dad, and One for the Country.
Much of the subsequent blow-out in the budget deficit, post the boom, reflected the full year costs of these tax and spending initiatives, compounded somewhat by some subsequent initiatives of the Rudd/Gillard governments, leading Abbott to claim in 2013 that we faced a “budget emergency”.
As George Bernard Shaw observed, “We learn from history that we learn nothing from history”. Or, as Churchill remarked, “Those that fail to learn from history, are doomed to repeat it.”
This is certainly the case when it comes to the present Morrison government, as evidenced by their response this week to MYEFO – the Mid-Year Economic and Fiscal Outlook.
MYEFO reported an unexpected surge in budget revenues, due to an unexpected increase in corporate and personal income tax receipts on the back of continued growth, strong corporate profits, and reduced unemployment, allowing Treasurer Frydenberg to announce a reduced budget deficit for 2018-19, and an increased budget surplus for 2019-2020.
Virtually as soon as the revenue windfall was announced the air filled with expectations/commitments of further tax cuts and new spending programs. It was quite clear that the Morrison government saw this as a significant “war chest” that they planned to use in an attempt to “buy” their way back into government – a very significant challenge if recent polls are correct suggesting that they could lose some 18-21 seats.
Unfortunately, there are strong reasons to believe that the recent revenue boost is unsustainable. The boost in company tax receipts is mostly due to fact that commodity prices have been stronger than conservatively predicted at the time of the last budget, such that the company tax system has been operating pretty much as a resource rent tax. With global, and particularly Chinese, growth now slowing, it is unlikely that this boost to company tax revenues will be sustained for long.
As George Bernard Shaw observed, “We learn from history that we learn nothing from history”.
Similarly, our employment growth is slowing, and the economic forecasts underwriting the future revenue and surplus predictions are still quite optimistic, especially on growth and wages growth.
Beyond this, both sides of politics have made very significant spending commitments that run well into the 2020s, in education and health, defence, the NDIS, and infrastructure, all of which will need to be funded as the decade unfolds.
Our economic prospects are also exposed to the possibility of another global financial crisis, with key stock markets overvalued by most objective measures, important property market tensions, and several sizeable “anomalies” in the structure of bond and currency markets.
There are also real concerns about the likely impacts of the Trump/China “trade war”, about the US Fed’s interest rate intentions, about the likely economic consequences of BREXIT, and of a host of geo-political tensions that could unfold to further compound the economic prospects. These are all very significant risks, with significant possible consequences for our budgetary capabilities.
In these terms, the government’s attempt to “spin” the MYEFO data, to create a perception that it is all due to “good” economic management, rather than mostly luck, to confirm their reputation as “better economic managers”, may prove to be a high risk strategy in the run up to a May election.
Moreover, at a time where voters have generally lost faith in our politicians, in the two major parties, and in our political processes, the pressure is increasingly on them to be authentic, to offer a true and complete account of where we sit, of our challenges and opportunities, and to deliver sustainable policy outcomes.
Voters will not be impressed by more of the “old politics”, based on creating false hopes, and making undeliverable promises.
John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.