Contributed by Joe Montero
When Treasurer Scott Morrison delivers the 2018 budget tomorrow (8 May), expect a load of smoke and mirrors. Public statements about achieving a government spending surplus sooner than previously expected, have already been warmed up to this.
Accounting creativity has been used to keep some significant items off the balance sheet as liabilities, namely some $73 billion marked “off budget,” but bringing an annual $2 billion debt payment bill. This includes, $47 billion for the National Broadband Network (*NBN), $6 billion to take full Commonwealth ownership of the Snowy Hydro power scheme, $10 billion to build the inland rail line, $5 billion for western Sydney airport and $5 billion to set up the Northern Australia Infrastructure Fund to lend to commercial projects.
These “off budget” items are then neutralised, by recording classifying them as grants and recording them as part of the government’s equity .
It is accounting hocus pocus, mentioned, mainly because it does suggest that there is something short of real honesty here. In truth there is neither a major government debt or budget deficit problem. Continuously stating that they exist does not make it real.
The fiction has been used as a cover to cut back on government services, in order to pay for servicing the top end of town.
The data is clear. Much of the government debt has been transferred into private household debt. This is the real debt crisis in Australia. And government policy over recent decades been playing a significant part in creating it.
Australia’s government deficit exists, but not to the point where it is a major problem. Reducing the deficit should not be the number one priority. In any case, to a significant extent, this is the nature of the government expenditure cycle. Money is spent and then recovered by the slower taxation system. At the end, it gets much closer to a balance.
Cutting the government deficit when it is not in crisis only makes sense, when it is effective as a means of taking excess money out of the economy, by reducing government activity. This does not make sense, when governments apply policies at the same time that build up private debt, which is a good way to do exactly the opposite.
An excess of money in circulation, is a much bigger problem than the so-called budgetary surplus. At a time when the real economy is contracting (and by this is meant the economy of making things, through to getting them to the consumer), too much money means that some of it will by chasing and feeding speculative bubbles. And hasn’t this been a major feature of the modern Australian economy?
If this was going to be tackled, surely the way to go would be to take some of this money out by the least harmful means. It would mean putting into place measures that will ease personal debt, and at the same time, inhibit speculative investment. To be effective, it would raise taxes on the richest individuals, the corporate world, and most of all, to the finance sector, while at the same time, providing some incentives to invest more in the real economy. Something would also be done to take on the massive scale of tax evasion and money laundering.
The government deficit would go up like a puff of smoke, and the bumper surplus could be used to share economic benefits more equally, and in doing so, stoke the engine for the growth of the real economy. People on a normal income spend their money. The more they spend, the more goods and services demanded.
But do not expect any of this is in the budget. On the one hand, the claim that the government is managing the economy well, will be used as a justification for some short-term pork barrelling, with an eye to the coming election. If the track record is anything to go by, chances are that more will be taken than given. More importantly, it will be used to justify the intended company tax rate cut. The illusion will be used to claim that the government can afford it.
What won’t be mentioned is that the government’s greatest generosity is reserved for the wealthiest five percent that make up its core support base. It knows which side its bread is buttered on.
Nor will there be mention of the fact that the average tax payer and the least well off, will pay for this generosity. Nothing will be said, about how government policy will make worse the problem of excess money in the economy, by further increasing the proportion of national income going to the top end and increasing the reliance of most people on growing debt. Nothing will be said how this will damage the real economy, as the speculative bubbles are fed even more.
It all goes to show where the real power in Australia is. Those who are benefiting the most from the destructive government policies have a stranglehold over the government, and the government dances to their tune. It is an affront to any idea of a democratic society.
If we want better, we have no other choice but to change this. The connection between big business and the top end of town must be broken.