Budget takes steps forward – and back

12 May 2017 |

Ahead of this year’s Federal Budget we encouraged people to look beyond the impact on their personal situation and think about what the Budget means for the country. Well, now Scott Morrison’s second Budget is out we’re looking at how it performed on these key questions.

First, we asked whether spending delivers a positive return on investment.

Infrastructure is a big part of this year’s Budget, though much of the new funding has previously been announced. Many of the major infrastructure projects have great potential to improve Australia’s productivity, such as the second Sydney airport. It is important that infrastructure investment is backed by a decent business case.

Developing our human capital through education and training also delivers strong returns. The Budget clarified the Government’s commitment to invest in school education and higher education, while also responding to industry calls to develop the skills we need in the workforce through apprenticeships and traineeships.

Second, we asked whether decisions made government programs more sustainable.

The Government has made some effort to better target welfare payments through mutual obligation requirements and making it harder for welfare recipients to game the system. This will break down the crippling effects of intergenerational welfare dependency by helping people transition from welfare to work. It also means payments can better be targeted to people who genuinely need them.

Third, we asked if a program could be delivered more efficiently by the community sector or the private sector.

In the Budget the government flags $75 billion in infrastructure funding and financing over the next decade, which makes sense given the Federal Government is well-placed to take advantage of its AAA credit rating and low interest rates to fund major projects. These projects provide enormous opportunities to tap into the expertise of the private sector in construction and operations, but it remains to be seen how much will be outsourced.

In many programs that received funding in Tuesday’s Budget, the private sector has a big role to play. Projects from major defence procurement to the provision of childcare and the jobactive scheme all recognise the efficiencies of private sector involvement.

Fourth, we asked if a decision led to more or less red tape for households and businesses.

The Federal Government has put the benefits of its red tape reduction effort at $5.8 billion, and then shifted the focus to the states, putting $300 million towards a national partnership to cut unnecessary restrictions on competition and small business.

But there are other changes that set off alarm bells. The government is seeking the power to impose new obligations on bank conduct, to force executives to be registered and to create new rules on credit cards. Meanwhile employers will need to jump through hoops before they can sponsor a visa for a skilled migrant and some property owners will need to answer to the government if they opt to leave their property vacant.

Finally, we asked what legacy the budget will leave for future generations.

While we are pleased to see the government project the Budget will return to surplus by 2020/21, we are worried about how it will get there. The overwhelming majority of the improvement to the budget comes from tax increases. Over the four years to the surplus, government receipts are forecast to rise by 1.6 per cent of GDP while government payments will fall just 0.2 per cent of GDP.

This means that many of the tough decisions we need to take today to get the budget back to surplus have been postponed. Gross debt is forecast to grow beyond $600 billion by 2020/21 and reach an alarming $725 billion by 2027/28.

Encouragingly, however, the Treasurer points out that in the financial year after next, the Federal Government will not need to borrow to fund its day-to-day expenses, the first time this has been achieved since the Global Financial Crisis.

So the Budget meets some of these tests, but on others it misses the mark. The Treasurer has tried to build a Budget that not only helps to support growth for the future, but that the government can navigate through the Senate.

With the Labor Party and crossbenchers refusing to pass most of the previous attempts to reduce spending, political pragmatism rather than economic ambition determines which policies will pass. That might be good enough for a while, if the economy was fully charged. But it creates risk at a time when business investment is weak and wages growth subdued.

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