Home World Business Political left and right hopelessly hooked on budget deficits

Political left and right hopelessly hooked on budget deficits


As the budget leaks begin to stream in, Treasurer Scott Morrison tries to convince us that the debt raised by the Liberal government is good debt – presumably unlike Labor’s bad debt, which the Liberal Party complained about bitterly when it was in opposition. He no doubt hopes to soften the blow of another whacking great deficit, and perhaps keep his (troubled) job for another year.

As we’ve now had a decade of deficits, pundits on the left and right have had ample time to hone their respective lines on who or what is to blame for the shortfall.

Treasurer Scott Morrison. Australia has now had a decade of federal deficits. Treasurer Scott Morrison. Australia has now had a decade of federal deficits. Photo: Cameron Spencer

For many on the left, the standard response is that not enough tax is being collected, specifically from the rich and from multinational corporations. The story goes: if they would just pay their fair share, everything would be perfect. That the rich now pay the overwhelming majority of tax, a share which has in fact increased in recent decades, is strangely missing from this discussion.

Equally, however, some on the right target those considered bludging on welfare. The story goes: if only those people would take the jobs on offer, we would be able to cut spending and the budget would balance. Again, a rather salient point isn’t acknowledged; this time, that the budget deficit is more than three times the entire annual cost of Newstart.

In truth, the budget is unbalanced in Australia – as in many Western nations – because of the steady abdication of personal responsibility to the state. Over the past 50 years, average people have sought taxpayers’ support to fund the ordinary, predictable expenses of life; such as the cost of raising a family or retirement. Payments for education and healthcare also continue to increase at a rate that greatly outstrips wage growth.

Politicians may have pushed government as the solution to all problems, but voters have rewarded them for doing so at every opportunity.

This has been a mixed blessing for the left, despite its wholehearted embrace of big government. The most generous and expensive welfare payments remain those that are the least targeted.

Newstart recipients, many of whom struggle to make ends meet, see little or no prospect of real increases in their payments, while the age pension increases at 4 per cent a year – despite one in four pensioners having $1 million or more in net worth. The cost of childcare continues to grow at breakneck speed, yet childcare workers see only small wage gains.

Beyond this, welfare often contributes to social problems nearly as much as it helps solve them. A generous safety net is most effective when combined with a strong ethos of personal responsibility.

However, the budget deficit is less of a concern for the left, as clearly evidenced by the failure of voters to punish Labor for admitting it would increase the deficit at the last election. It is more damaging for the right, which stakes its reputation on economic management. It is particularly problematic, since the right once knew the importance of personal responsibility, and the links it had not only to fiscal stability but also to social cohesion.

Yes, the right wants personal responsibility for some; largely immigrants and the unemployed. But a number now talk about the need for government to support industry and Australian jobs, plus the recently rediscovered right to a taxpayer-supported retirement, “earned” by paying taxes and working – an idea that was last seriously supported by Gough Whitlam.

It is hard to take welfare reform seriously when, despite changes to the age pension in recent years and significant increases in wealth as a result of booming house prices, millions will continue to receive the age pension for years to come.

The cost of childcare continues to grow at breakneck speed, yet childcare workers see only small wage gains.

Without changing attitudes towards government, budget deficits will remain the norm. Periodic surges in revenue will close the gap, but recent experience suggests these temporary windfalls will simply result in more permanent spending.

While the budget process itself is quite complicated, the equations at the heart of the budget are simple. Generous payments that are available to large numbers of people cost a great deal of money, but cuts to those payments are not tolerated.

The only taxes that consistently raise a great deal of money are those that touch a lot of people, but increasing those taxes are least supported by voters. In the end, neither side has a budget story that checks out because spending on the many cannot be paid for by taxes on the few.

Simon Cowan is research manager at the Centre for Independent Studies. scowan@cis.org.au


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