Neoliberal Hangovers

A decade ago, the Labor government of Kevin Rudd and Julia Gillard ran a much smaller deficit to help Australia’s economy out of the global financial crisis. The Liberal and National parties, then in opposition, called it a “debt and deficit disaster,” and the mainstream media assiduously presented the deficit as proof of Labor’s supposedly poor economic management.

The budget deficit is $214 billion this year, with national debt set to reach $1 trillion. The budget papers say the budget will never return to surplus, with Australia’s national government still scheduled to be 1.6 percent in deficit by 2030–31. The government rightly claims this is “unprecedented.”

At the highest margin, Commonwealth spending balloons out to 35 percent of GDP, greater than it has been since the 1940s, before contracting back to a more normal 27 percent in 2023–24. The budget papers say unemployment would be a full 5 percent higher without all that spending.

And yet, the deficit hawks are nowhere to be seen. Rather, the commentariat and political establishment has tacitly reframed the neoliberal orthodoxy of past decades. Deficit spending is fine, so long as a conservative government is doing it. And when more normal political conditions return, the deficit generated by big tax cuts will be used to justify vengeful austerity.

Trickle-Down — and Pump Back Up

The budget centerpiece is a massive giveaway to business, worth over $31 billion. This will be delivered via bespoke instruments of business charity, including an investment write-off and the picturesquely named “loss carry-back” provision (essentially, a handout for making profits in previous tax years).

In a development that will surprise nobody, these handouts will largely subsidize capital investment, boosting profits in capital intensive, job-poor sectors like mining, fossil fuels, and construction, rather than directing stimulus to job-rich service sectors.

Most of the stimulus amounts to pure wealth transfer to investors. Big business is likely to trouser these savings, or give them straight to shareholders in the form of higher dividends. That’s why business lobbyists were cock-a-hoop on budget night, with big lobby groups beaming in delight during their television interviews.

As predicted, the government has brought forward its income tax cuts, ostensibly to provide immediate relief. The aggregate figure looks decent at $17.8 billion, and middle income earners will see a benefit with around $1,000 extra in their pockets at tax-time next year. But these tax cuts are deeply inequitable and skewed heavily to high-income earners.

It’s really a move toward a flat tax; those with an income between $45,000 and $200,000 will pay the same rate of tax. As a result, around 88 percent of the value of the tax benefit goes to high-income earners. According to Australia Institute’s Matt Grudnoff, the tax cuts give “a temporary boost to lower and middle-income earners and a permanent boost to the wealthiest people in the country.”

There is no justification for tax cuts to the rich. High-income earners have done very well out of the pandemic and despite negative inflation, many affluent households have found little to spend their money on. Perhaps there will be a boom in luxury purchases, but it seems likely that the wealthy will continue to save. That obviously won’t help aggregate demand.

Long-Term Malaise

Instead of using a genuine stimulus to kick-start the economy, the government is buckling in for long-term economic malaise. The treasury says that real GDP will fall by 3.75 percent in the 2020 calendar year — an impressive fall, given that inflation is already negative. Unemployment will reach 8 percent.

The budget papers say that even if the economic recovery goes all right, unemployment will still be 6.5 percent in 2022 and 6 percent in 2023. In other words, even according to the government’s own predictions — which rely on a best-case scenario, in which a widely-distributed vaccine is available next year, facilitating a speedy recovery — mass unemployment will persist for years to come. Slow employment growth combined with low wages is a recipe for stagnation.

Table 2: Major Economic Parameters^(a)

Of course, we should not make too much of such longer-term forecasts in an economic climate as volatile as this. But if these figures are accurate — or even worse, over-optimistic — Australians should be deeply concerned.

The Coalition’s budget offers few measures to ameliorate social disintegration. There’s nothing meaningful for social services, education, housing, or for childcare. There’s not even that much for infrastructure, with the government spending around $7.5 billion in this budget, and topping up its infrastructure capital fund by an extra $10 billion over ten years. Some roads will be fixed, but it won’t have a significant macroeconomic impact.

Nor is there any money for many policy areas that desperately need it. In his budget speech, Frydenberg barely mentioned climate change or renewable energy. But he did find the time to spruik the government’s plans to open up five new gas basins, across the Northern Territory and Queensland, as part of what Scott Morrison calls a “gas-fired recovery.”

For higher education, there is less than nothing, with news breaking on budget day that the government has the numbers in the Senate to push through its latest funding legislation. Laughably named “Job-Ready Graduates,” the bill will cut funding to universities, dramatically raise fees for future students, and remove government funding for students that fail too many subjects. Most analysts expect it to lead to further job losses in a sector that has already shed almost 10 percent of its employees.

Work for the Dole 2.0

JobKeeper is set to finish in March 2021 — a premature cut-off point, since even according to the government’s forecast, economic growth will barely have restarted by then. The March cut-off also creates a looming “fiscal cliff” which threatens any recovery.

JobKeeper will be replaced with a much weaker hiring stimulus the Coalition is calling “JobMaker.” It is a lower and narrower wage subsidy, worth $200 per week, and accessible only to workers under thirty-five. As Alison Pennington, Senior Economist for the Centre for Future Work notes, the scheme resembles the maligned Work for the Dole program, in which welfare recipients are often required to work in unsafe conditions for pay much lower than the minimum wage.

Pennington warns that “the program incentivizes employers sacking more expensive existing employees” and will lead to “batches of up to 450,000 young vulnerable people being churned through low-skilled, low-paid work every 12 months.”

There are already credible fears that some employers will lay off older workers and put on younger workers in their place, to take advantage of the wage subsidy.

There will be extra funding for apprenticeships — the government says it will create 100,000. But again, this figure looks rather rosy. The funding for these 100,000 places is only $1.2 billion, which seems like much less than what will be required.

Punishment for the Many

There is abundant evidence that the temporary increase to welfare payments lifted many out of poverty. But this budget locks in previously announced cuts to the JobSeeker supplement by returning welfare payments to their former level, well below Australia’s poverty line.

Welfare groups have condemned the decision. Anglicare’s Kasy Chambers stated bluntly that “instead of doing what needs to be done, this Budget gives handouts to people who don’t need them.” This underscores a major theme of the budget — punishment of those outside the Liberal base and rewards for their friends.

For women, disproportionately affected by the pandemic recession, the budget continues the Morrison government’s patriarchal disdain. There’s a token $240 million spending program for women, but the bulk of spending continues to favor high-earning men. Because the majority of high-income earners are men, the tax cuts skew male.

The same is true for stimulus spending on male-heavy infrastructure and apprentices. Female-dominated industries like childcare, social work, and higher education get nothing, or even outright funding cuts. For example, $41.3 million will be cut from homelessness services from July 2021.

Especially galling is the budget’s lack of meaningful investment in affordable housing. For years, neoliberal economists have told us the solution to high house prices is to increase housing supply by building more houses.

Yet Australia’s overheated property market has locked a generation of younger workers out of the housing market, forcing them to rent at inflated prices under notoriously landlord-friendly property laws. Although bond rates are at a generational low, the government has refused to take the one measure that could correct this: building public housing.

Rewards for the Few

Australia is one of the wealthiest nations on the planet, with a highly educated population, good economic institutions, excellent universities, and a good health system. Given these advantages, Australia can and should aim to for an unemployment rate of 4 percent or lower. Settling for a long-term period of high unemployment is a betrayal of Australia’s future.

With rock-bottom interest rates, the Commonwealth could be using fiscal policy not just to stimulate in the short term, but to invest in projects and institutions that set Australia up for a generation of prosperity. It is obvious what these priorities should be: renewable energy, environmental repair, affordable housing, education for all, equality for women, opportunity for the young, and dignity for the aged.

This budget does none of that. Instead, it feathers the nest of the Liberal Party’s corporate donors, ignores climate change and housing affordability, and doubles down on inequality.