It’s hard to think of a more inane topic of conversation than the Australian budget deficit. If there is one, we’re all ears. This mandatory tit for tat we’re subjected to around election time epitomises everything that’s wrong with the political system in this country.
This morning, the ABC reported that the Opposition aims to match the Coalition’s timetable in promising to return the budget to surplus by 2021. To no one’s surprise, the Coalition fired a salvo by suggesting that Labor would only worsen the deficit if re-elected.
Who’s right? Take your pick.
Either way, Labor is intent on convincing the Australian public that they have a sound economic policy from which to lead the country back into the black.
To show everyone how serious it is, the Opposition has launched its so-called 10-year economic plan — an awfully long time for a party that can’t see beyond the next election…
In any case, we have every right to call a spade a spade here. Labor doesn’t have a 10-year economic plan. What it has is a set of ephemeral ideas — subject to change at the drop of a hat — that it can use as a plea bargain, cajoling the Australian public in voting for it at the polls.
We don’t even need to look at the contents of this ‘policy’ to realise that, at best, it will be a loose ‘To Do’ list that Labor can refer to whenever it suits, lashing out at critics for ‘historical revisionism’ whenever it doesn’t.
Naïve as that may be, it is what elections are all about after all. You make promises that you have no obligations to carry out.
Politicians aren’t accountable; not in the truest sense anyway. They have no key performance indicators to measure themselves against. Sure, the electorate can vote parties out. But substituting a Coke for a Diet Coke doesn’t pass as choice.
These are illusions of choice. If you’re particularly daring and avant-garde, you might eschew both, picking up a Fanta instead. Ultimately, however, you’re still buying highly concentrated sugar dosages dressed up in different bottles. The political spectrum is no different.
For the sake of it, let’s humour Labor for the moment by taking a look at what it is exactly that it plans to do over the next decade if elected. What brilliant manifesto have they drawn up to steer the good ship Australia away from rough waters? And how will they go about implementing it?
The ‘answer’, straight from the mouth of Opposition leader Bill Shorten:
‘It is true that Labor will not have the same degree of fiscal contraction as the Liberals over this period. This is because our solution to the structural deficit rejects unfairness, does not attack demand and confidence and avoids retrospectivity.
‘We’ll deliver better and bigger structural budget improvements over the decade, savings that accumulate over time and stand the test of time.’
In case it hasn’t dawned on you already, Shorten didn’t really say anything there. It’s not only complete gobbledegook, lacking anything of substance, but it suggests that Labor’s 10-year economic policy is doomed before we’ve even had a chance to see the contents of it.
A direct translation of Mr Shorten’s (poorly delivered) sales pitch might read:
It is true that Labor won’t be cutting spending as much as the Coalition over this period. Why? Because spending buys votes, and we like votes. And our solution to the structural deficits rejects anything that hurts our ability to buy votes. We don’t want to tighten the purse, because the Australian public might start doing the same, and we can’t have that.
We’ll deliver better and bigger structural budget improvement over the decade, but we haven’t figured out how we’ll do that. To be clear, we’ll spend more than the Coalition, but we’ll save more as well. How will that work? Don’t worry about that, it will.
You don’t even necessarily have to read between the lines of what Shorten is saying to see the shortcomings inherent in this so-called economic policy. What Labor is really saying is that, if elected, it plans to worsen the deficit. Shorten again:
‘We will achieve more savings than spendings over the decade, we will reduce the deficit each and every year. Based on current budget forecasts and projections, under Labor the budget will be in balance in the same year as the Liberals.
‘Labor believes in returning the budget to balance in a way which supporters economic growth over the next four years.’
Again, spend more, and save more. The Labor party has either stumbled on to what might constitute the greatest economic epiphany in history, or it’s making it up as it goes along. Our bet is on the latter.
To be fair, Shorten is probably right about one thing there. There is every good reason to believe that Labor would balance the budget in the same year as the Liberals. Why? Because these are two peas in the same pod.
Differences that might have once existed between these two parties have become increasingly unclear. They don’t stand for anything which gives voters real choices. This country is being corralled into policies which benefit big benefits, and it matters none who’s in charge. For that reason, they’re both likely to promise more spending, and, paradoxically, more cuts.
Regardless, one thing remains clear. Whoever you vote for at the polls in July, you can expect a future of false dawns and failed promises. The 10-year economic plan is an advertising campaign, not a policy rooted in economic fundamentals.
Is government debt so bad after all?
If we were to play the devil’s advocate for a moment, there’s another point we could raise for consideration. That is; is a budget deficit inherently bad? And is it any worse than household debt?
As a percentage of GDP, household debt stands at over 200%, according to the Bank of International Settlements. Government debt, meanwhile, is a little under 50%.
The debt households have racked up, in the form of loans and credit cards, is comparatively far worse than the debt accumulated by the government.
Why then is government debt such a major talking point, when households are, generally speaking, uneasily comfortable with debt?
Because we can blame the government for all our problems. It’s a little harder admitting we ourselves have the same problem. Only that we realise we’ll never be able to spend and save more at the same time.
What can the government do to eradicate the budget deficit?
An indebted government has one of three options it can pursue.
The first is to take on more debt. Since governments like pliable voters they can massage into voting for them, this is a popular option.
The second option is to increase taxes. This, as you can imagine, doesn’t fit with the ethos of buying votes, and is best avoided if possible (in the eyes of politicians).
The third — fiscally responsible but emotionally charged — option is to cut back on spending. That way, governments can divert taxes to pay off said debt.
Drastic times call for drastic measures, and governments aren’t strangers to enforcing both the second and third options when they can convince the electorate that things really are bad enough to warrant such a move.
The only problem with selecting any of these options is that terms in office are limited. In other words, elected officials care about getting into office…and staying there. Whatever happens beyond their tenure is someone else’s business. Kicking the can down the road is a viable career move; and why wouldn’t it be? After all, why put yourself through the grief of trying to fix structural problems when you can pass the baton to someone else?
Who needs that trouble?
Nobody, apparently. Not Labor. And probably not the Coalition, either.
Contributor, Markets and Money