Politics Analysis

Department heads give worst ever economic report after eight Coalition years

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(Cartoon by Mark David / @MDavidCartoons)

The heads of Treasury and the Finance Department have just issued the most pessimistic Pre-Election Economic and Fiscal Outlook report since PEFOs have been a thing, as Alan Austin reports.

LAST WEEK’S official assessment of the health of Australia’s economy foreshadows continuing worst-ever outcomes on virtually all important indicators. Had this been released with Labor in office, screaming headlines would be demanding the incompetent regime’s immediate sacking. The tabloids would be exhorting readers to take to the streets with pitchforks and flaming brands.

Longest run of deficits

Twelve years ago, after just one Labor deficit of $27.0 billion, the Coalition parties and the media ran a relentless campaign to oust the Gillard Government at the 2010 Election.

Opposition Leader Tony Abbott was scathing about that solitary deficit and the associated debt — despite both having saved Australia from recession during the Global Financial Crisis (GFC):

“We will take the high road to surplus of cutting spending, so our surplus will be achieved with the Government’s share of the economy smaller than it would be under Labor.”

All nine Coalition budgets since then have delivered the opposite. All have been in deep deficit, with more forecast to follow indefinitely. The last three were $85.3 billion, $134.2 billion and $79.8 billion. The next three are projected at $78.0 billion, $56.5 billion and $47.1 billion. The average of those six is negative $80.1 billion.

In contrast, the average of Labor’s six budget outcomes was just negative $28.6 billion.

The big difference, of course, is that only two of the Coalition’s eight years were impacted by the COVID-19 recession. Five of Labor’s six years were affected by the much more severe GFC.

Wasteful spending

Tony Abbott vowed in 2010 that:

“Under the Coalition, spending will always be less and tax will always be lower than under Labor.”

The diametric opposite eventuated. Labor’s highest spend was 25.9% of gross domestic product (GDP) in 2010, at the depths of the GFC. Last week’s PEFO shows Coalition spending over the last two years has been an appalling 27.7% and 31.6% of GDP. The next three years are forecast at 27.8%, 27.2% and 27.1%.

Continuing high taxation

Tax to GDP will continue at historic highs across the forward estimates. Treasury and Finance believe the average for the next five years will be 22.6% of GDP. That compares with Labor’s five-year average of 20.8%.

Government debt blow-out

In 2010, the Coalition promised a debt reduction task force “to get to the bottom of Labor’s waste” and to “start repaying Australia’s $90 billion debt”.

Yes, $90 billion. That was the gross debt the Coalition and the media condemned Labor for in 2010.

The PEFO shows gross debt last year was $817 billion, or 39.5% of GDP. This is set to rise every year for the next five years at least, peaking at $1,169 billion – despite the robust global economy. That’s 13 times Labor’s modest debt the craven media was so outraged at in 2010.

Debt in the global context

Throughout Labor’s entire term, government debt was in the lowest three or four among developed OECD member countries. See blue graph below.

(Graph supplied)

Australia’s global standing has deteriorated disastrously since the 2013 Election. The latest data from the International Monetary Fund shows Australia now ranks 19th. See pink graph, below.

(Graph supplied)

Only three developed countries have seen their debt blow out by more than 35% over the last decade — Greece, Australia and Costa Rica. See green graph, below.

When Scott Morrison says Australia is leading the world, as he does daily, he means Australia is leading Costa Rica.

(Graph supplied)

Wages continuing to be lost

The gap between wage rises and inflation has been greater over the last year than at any time since the early 2000s recession. The PEFO offers no prospects for recovering workers’ lost income. It forecasts inflation this financial year at 4.25%, with wages up just 2.75%. Next year’s inflation is expected to be 3.0%, with wage rises at 3.25%, nowhere near enough difference to recover recent losses.

Job participation

Currently far too high at 66.4%, this is forecast to remain unacceptably high indefinitely. No relief is in sight for seniors in their 70s and 80s who cannot survive on the pension and have been forced back to work.

Pressure will also continue on younger Australians in poor families to leave school early and get a job, or join the dole queue, instead of going on to college.

Future risks

The PEFO lists a disturbing number of ‘key risks and uncertainties’. These include the continuing pandemic, health developments in China endangering global trade, the Russia-Ukraine conflict and rising inflation.

While the Coalition has not caused these, its poor record in dealing with past external threats is troubling.

The PEFO highlights one danger directly attributable to Coalition ministers — loans to private industry. These include $1.25 billion to mining company Iluka Resources.

The PEFO notes:

‘The financial implications for these loans are not for publication and the fiscal impacts of the loan to Iluka are not reflected in the budget estimates to protect commercial sensitivities.’

Bottom line: net worth destined to deteriorate indefinitely

When this Government took office in September 2013, net worth – government assets minus liabilities – was negative $205.9 billion. That was up from negative $263.8 billion in September 2012 and was forecast in the 2013 PEFO to return soon to positive values.

It has tumbled disastrously since. This week’s PEFO estimates it will be negative $595.3 billion in June this year, then deteriorate each year thereafter until reaching negative $778.9 billion in 2026.

The message

Under this administration, Australia’s wealth and income is being squandered at an unprecedented rate, as foreign corporations gouge ever-increasing profits and pay little, if any, tax.

The message of this PEFO is loud and clear — the Coalition just cannot manage the economy.

Alan Austin is an Independent Australia columnist and freelance journalist. You can follow him on Twitter @alanaustin001.

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