Canberra economists expose the Coalition’s economic failures

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Cartoon by Mark David / @MDavidCartoons

A blunt report from an independent Parliamentary body confirms that the Morrison Government’s hoped surpluses will come from cutting welfare. Alan Austin reports.

SEVERAL CENTRAL DECEPTIONS of the Coalition’s current Budget have been exposed in the latest report from the Parliamentary Budget Office (PBO) released last week. Some are stated boldly by the four authors. Others we discover by delving just a little.

These relate to slashing welfare, blowing out the debt, shifting wealth and income from the poor to the rich and overall economic mismanagement.

Further cuts to pensions and benefits

The report says that the surpluses the Morrison Government hopes to deliver in coming years will be achieved largely by ‘policy changes to tighten eligibility and constrain payments growth in a number of major programs’.

It specifies the areas to be cut:

‘These payments include the age pension, Medicare, family tax benefit, disability support pension, pharmaceutical benefits and carer income support.’

Australians can thus expect more harassment of people dependent on welfare, more robodebt false allegations of fraud, more mistakes by the callous corporations charged with minimising payments to those in need, more false accusations that beneficiaries waste money on drugs and more suicides.

The report verifies that the narrow deficit recorded in June was achieved only because people with disabilities were underpaid:

‘The decrease in payments in 2018–19 relative to the previous projections is mainly due to downward revisions to spending on the National Disability Insurance Scheme.’ 

Tax cuts only for the wealthy

The PBO report confirms that the so-called tax cuts which were the centrepiece of the last two election campaigns will only eventuate for the very rich, but the majority of wage and salary earners will see their taxes increase:

‘Even with the tax cuts, average tax rates are projected to continue to increase with growth in incomes, particularly for low to middle income groups.’ 

High income earners will gain, thus confirming that the budget shifts wealth directly from the poor and middle to the rich:

‘In contrast, the average tax rate for the top 20 per cent of income earners (those with a taxable income above $90,000) is projected to be little changed.’

(Source: PBO Report: 2019-20 Medium Term Fiscal Projections)

The report includes this graph which shows the combined impact of the tax cuts and bracket creep for different income groups. The lowest quintile, those earning below $20,000, will have their tax rate increased by 0.6%. This is indicated by the small white circles.

The second quintile, those earning $20,001 to $38,000, will see their rate rise by 4.5%. The third, between $38,001 and $58,000, will cop a rate rise of 3.9%. The fourth, $58,001 to $90,000, will see their rate up by just 1.3%. The fifth quintile, those above $90,000, will have their rate reduced by 0.5%.

This is not what was promised. Treasurer Josh Frydenberg insisted in his Budget speech last May that his priority was “protecting income earners from bracket creep”. Pants on fire.

Shonky debt targets

The report rejects outright the Government’s rosy debt predictions. It notes that net debt in the May Budget ‘was projected to have peaked in 2018–19 and is expected to decline over the next decade’.

But it does not believe this is credible:

‘The PBO’s alternative estimate of net debt... is around 21.7 per cent of GDP in 2019–20. This is 3.7 per cent of GDP higher in 2019–20 than the standard projection.’

Frydenberg’s last Budget is absolutely not credible. We are now one quarter of the way into the current financial year, which is a significant chunk. Since 30 June, the Government has added $20.8 billion to the gross debt. In 13 weeks. That’s an annual rate of $83.2 billion, the highest ever. We will know next week when we see the monthly Finance Statement for August and how this impacts the net debt numbers.

PBO history

Creating the Parliamentary Budget Office was agreed to in 2011 as one outcome of the hung Parliament. The 2010 Election gave unexpected power to a small-but-tough group of independents who were able to decide the Government. After negotiation with those independents, Julia Gillard’s Labor Government legislated for the PBO in 2013.

One purpose was to subvert the power of future Coalition Governments which had routinely used Treasury, the Finance Department and other agencies to their advantage and to the disadvantage of opposition and minor parties. Its charter is to provide independent and non-partisan economic advice to all MPs, particularly on costing election campaign promises.

Things the PBO invites us to watch

The report touches obliquely on several budget promises which already appear unlikely to eventuate. Do the authors know these will be broken, but cannot declare this openly?

Not sure. But they do explain in the appendix that ‘the economic parameters used to estimate growth rates in this report are the same as those underpinning the 2019–20 Budget, as required by the PBO’s legislation’.

In other words, don’t blame us if the outcomes are nowhere near these forecasts.

Budget projections which the report suggests will not be met include both revenue and spending.

Revenue will suffer as a result of shifting income from the poor to the rich, which will cause retail sales to stagnate even further:

‘Compared to the previous report, GST receipts have been revised downward by $13.9 billion over the four years to 2022–23, driven by downward revisions to the forecast growth in prices, consumption and dwelling investment.’

The same applies to excise and customs duty receipts which:

‘...have been revised downward over the forward estimates period, driven by downward revisions to the forecast growth in household consumption since the previous report.’

Unrealistic growth targets

The report notes that the May Budget was based on GDP growth running at 2.75% in 2019–20 and 2020–21. There is no evidence this will eventuate.

When Treasurer Frydenberg announced that target, annual GDP growth was 1.7%. That was for the first quarter of 2019, a rate well below the previous quarter’s 2.2%. It has slipped further to 1.4% in the second quarter.

Frydenberg also said in May that:

‘The unemployment rate has declined to 4.9 per cent. Youth labour market outcomes have also improved recently. Solid employment growth is expected to continue.’

This has not happened. The jobless rate has risen to 5.3% and youth unemployment is back out at 16.7%.

Nothing the Morrison Government says can be taken at face value. Everything must be checked. The PBO has confirmed this. Thank you, PBO. Thank you, Julia. Thank you, ornery independents.

You can follow Alan Austin on Twitter @AlanAustin001.

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