The budget deficit mantra is wrong

Contributed by Jim Hayes


The Canberra bean counters at Treasury and Finance have warned that significant spending cuts or tax rises to return the federal budget to surplus over the medium term. It’s the same old mantra, comparing running a government to running the local milk bar. They don’t seem to realise that they are different.

Of course, responsible management is required. But with the milk bar, t is the steady trickling in of funds that enables the owner to avoid a deficit. You do not spend more than you have coming in.  Running a government differs in that you must spend before the tax dollars come in. This means deficits are unavoidable.

But our bean counters cannot see the implications of this. They are blinkered by the ideology of neoclassical economics, or in today’s parlance, neoliberalism. To them efficiency means an unfettered market. Government spending is bad. Cutting costs to investors is good. It means government always spends too much. To them good government is pruning back government services as much as possible.

In country after country this approach has brought disaster. Australia is following the trend.

Our blind bean counters cannot see that what we have is not a deficit problem, but a revenue problem. That is, the inability to raise sufficient funds to maintain a government to operate in a way that is serves the interests of the majority. It is a failure that ensures a servility to only the big end of town. The graph above indicates that government spending and revenue have been  moving in opposite directions for a long time. The trend is that when a government raises its spending, revenue raising goes down. Part of it has been funded with tax cuts. or at least reliance on the existing revenue base to meet increased commitments.  One thing is certain, governments have not paid the warranted attention to finding solutions to the revenue-expenditure gap from the revenue side.

If the problem is a revenue shortage, the solution to present economic problems must be to find ways to raise sufficient revenue to carry out proper government; providing better services and acting as a leading force in the economy, ensuring investment where it is needed and guaranteeing broad based social participation and fair distribution of the gains.

This approach is much more likely to serve as a kick start economic engine, providing both the drive and market for economic growth, based on a better society.  It does not mean that everyone is on a level playing field. Clearly, some put in extra effort and provide special talents. Both should be recognised. The difference is that this should not be at the expense of others.

Many millions of dollars in corporate taxation have been lost through holes in the taxation system. Reclaiming this windfall would go a long way to resolving the revenue short fall. It is no secret that Australian society as a whole would like to see these corporations contribute their fair share. Then Australia would be in a better position to improve health and education opportunities, but to ensure the building of new infrastructure and the growth of new industries needed for our future wellbeing. All this while maintain a much healthier budget than in the case in the present order.

And another thing. It has become abundantly clear to any but the stubbornest of fools that we have to build a sustainable economy, if we are to avoid the greatest calamity we have seen as a species. We need to do it together and this is doubtful that this is possible if we continue to travel along the same road.

The coalition of the Liberal and National parties is dead set against this approach. They are stuck in the mire of the old traditional hyper capitalist framework. Unfortunately, the Labor Party is luke warm to departing too far from a similar mantra, even if not stuck so deeply in the mud.

An alternative must be raised and popularised., if we are to drag ourselves out of the current mess.

We do not have to accept the word of the Canberra bean counters.



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