MYEFO a Reminder about Australia’s Economic Problems

Yesterday Treasurer Scott Morrison released Australia’s Mid-Year Economic and Fiscal Outlook (MYEFO) which contained more bad news about the state of the federal budget with combined budget deficits over the coming years blowing out by $10 billion. Australia was lucky to not have its credit rating downgraded for now. The budget is projected to return to surplus in 2020/21, however given that governments from both sides have a history of projecting a surplus in years that have already passed us by we shouldn’t be optimistic about this future surplus being reached.

While the culture wars and threats to freedom from the progressive left often consume a lot of political discourse the state of our economy is just as important. MYEFO is a reminder about the perilous state of the Australian economy and follows from the announcement earlier in the month that the Australian economy shrank in the September quarter, the first time this has occurred since the global financial crises.

Budget repair and creating conditions to foster economic growth should still be the number one priority for an Australian government. Budget repair has been an extremely slow moving process, however it should be noted that this is not entirely of the government’s making as Labor, the Greens and crossbenchers influenced by special interests and rent seekers are blocking $20 billion worth of budget savings in the Senate.

The Labor party has long been uncooperative with budget repair and refuses to admit that its period in government in 2007-13 helped get us into this situation. Before they were voted out they promised massive spending measures such as the Gonski education funding, the National Disability Insurance Scheme, not to mention that they had already locked in massive funding for climate change bodies and of course overseen the blowout of the National Broadband Network.

They had to be guilt tripped into passing the government’s omnibus budget savings bill in September this year since they were spending cuts Labor themselves had promised in the 2016 federal election. This was a massive win for the government given the fact that in the previous parliament they had opposed their own proposed spending cuts.

The budget still has significant structural problems which the Coalition has talked about addressing but has found proposing any action too politically difficult. This includes any attempt at welfare reform including more stringent work requirements on unemployment benefits and cracking down on abuses of the disability support pension. Lobby groups such as the Australian Council of Social Services headed by Cassandra Goldie will rail against any proposed reforms and will be given a platform by a sympathetic media.

An attempt at health reform with a Medicare co-payment was abandoned during Tony Abbott’s time as Prime Minister. Climate change bodies such as the Climate Change Authority and the Australian Renewable Energy Agency continue to be funded. Not to mention the massive funding the arts, sports and the ABC continue to receive. Much more can be done and must if we are not only going to return to surplus but begin to repay the debt which will hit 19% of GDP soon.

Another detail of MYEFO was that the blowouts in deficits was largely due to falling income tax receipts and company profits, reflecting the recent shrinking in economic growth. This is where more needs to be done to create better economic conditions. This is also where the Labor party and others will not help. Labor’s Chris Bowen and Jim Chalmers believe that Australia’s economic predicament can be cured by changing negative gearing, and keeping capital gains tax and company tax high. As the saying goes no country can tax itself to prosperity.

What really needs to happen first is to cease the push to renewable energy through policies such as the Renewable Energy Target in order to ease the energy costs of Australian businesses. The labor market needs to be more flexible to incentivise businesses to hire more workers. More red and green tape needs to be cut and more infrastructure and urban development should be allowed to take place to allow commerce to be facilitated at a lower cost.

Of course suggesting these things is one thing, politicians being able to implement them is a very difficult challenge to navigate. But it can be done as has been demonstrated over in New Zealand. They have already reached their first budget surplus since the global financial crises with annual economic growth projected to be at 3.6%. We could learn a lot from our Kiwi cousins and these achievements have been accomplished along with the continued electoral success of the current National Party government.

Politicians, if they make the case successfully to the people and stare down their political enemies, can achieve reform. We had a Prime Minister in John Howard not too long ago who mastered this. The state of the Australian economy should concern us all and unless we do something to change the current trend then we are in for some challenging times ahead and living standards will begin to decline.