The Middle Brow - Budget in the Land of Hope and Dreams

By Kylie McCaig

As Wayne Swan blasted Bruce Springsteen's "Land of Hope and Dreams" before delivering his fifth budget, was this how he hoped the nation's population (or, rather, the finance journalists who were going to put the spin on it) would perceive Australia after hearing the results? Perhaps the first indication of the direction of the budget came when the journalists in the budget lockup discovered there was no coffee - spending cuts began early!

There has been much rhetoric about Swan's budget being a "Robin Hood budget", but was it really?  Indeed, the May 2012 Budget has seen a major redistribution of money. The Treasurer only needed to find $2.5 billion to create a surplus, but he redistributed  spending levels significantly more than he needed to in an apparent effort to buy votes.

The main cuts to spending were achieved by reducing Defence, Foreign Aid and scrapping the planned 1 per cent cut to the company tax rate. These cuts will be delivered to Australian families and businesses in the form of $7 billion in cash payments over the next month in an aggressive cash splash to counter the negatives of the carbon tax. This is the Robin Hood element, giving to those in need.

Or have they? The NewStart allowance is being "boosted" by a one-off payment of $210, which works out as an increase of $4 a week. While welfare groups such as ACOSS are optimistically viewing this as a sign the government has recognised recipients of this allowance are not receiving enough money to live above the poverty line, and that this is merely a starting point, there is still a long, long way to go.

The NewStart allowance has not been increased in real terms since 1994. That's 18 years. During that time, annual CPI has risen from 111.76 to 178.5, an increase of 60 per cent. This suggests that those relying on NewStart have gone backwards by 60 per cent as the cost of living continued to rise. And so, despite the rhetoric that this is a "Battler's Budget", it really hasn't done anything to help the truly marginalised in our society. Four dollars a week? That will barely pay for the train fare to a job interview.

Wayne Swan's budget was not so much about cutting spending but retarding the growth in spending, enabling Swan to incrementally achieve his objectives. However, the Budget failed to address the current two-speed economy that exists within Australia. The rhetoric is that the economy is strong but economic forecasts contradict that. While this wasn't overtly spoken about, the Budget did address this by cutting spending in areas that won't damage the economy, such as Foreign Aid, Defence and tighter superannuation concessions for those earning over $300,000 per year.

However, the notion exists that the economy is strong while you fall within the bounds of mining and outside of mining, according to the Australian Chamber of Commerce and Industry, the business community is hurting badly. Swan repeatedly mentioned during his budget speech that the tax base is diminishing. The budget that has been delivered, then, is not sustainable over the longer term.

Referred to as a budget based on the "Benefits of the Boom", it is predicated on the mining boom continuing. We know there are only two certainties in life, death and taxes...  We don't know when the mining boom will end, but end it will.

The Government has promised increased spending over the longer term, and the pressure will be on the existing and future governments to fund this expenditure from a diminishing tax base. Swan almost completely unwound the recommendations from the Henry Tax Review around savings tax and cuts to the company tax rate.

Meanwhile, retail figures show that consumers are reluctant to spend, leaving their money in the bank and growing their savings accounts, but not benefiting businesses via increased sales. While boosts to social welfare via one-off payments and the education cash bonus will provide some help to struggling families, growth in jobs and business confidence are required to drive the economy onward over the longer term.

Other hits and misses in the Budget were the commitment of $1 billion to launch the National Disability Insurance Scheme, which has been welcomed by the community. However, the current Federal Government has a history of making promises to launch projects but failing to follow through and deliver them, creating some skepticism around whether these programs will be realised.

There has been no attempt to implement any elements of the Gonski Education Review, which is concerning, and there have been cuts to the National Literacy and Numeracy program, neither of which will do anything assist in developing Australia as the "Smart Country".

So what has the 2012 Federal Budget achieved? It has pushed back spending growth while not delivering any significant blows to the economy. Yet it has done very little else. It will do little, if anything, to stimulate business and consumer confidence. Ultimately, the main thing this Budget has delivered is control to the Reserve Bank to further reduce interest rates should the economy continue to remain flat.

Kylie McCaig (BEc, MBA Exec) has worked in media and investment banking and puts her skills to good use travelling to the world's financial capitals and reporting back her findings on everything from cost-per-wear fashion investments to Moscow's non-existent welfare system. With a keen sense of justice, she is a Christian who ultimately desires to make a difference. 

Also by Kylie McCaig:
Contemplating China's shiny new materialism

Girl With a Satchel

1 comments:

hannah said...

This review is disappointingly biased against Labor. I don't necessarily disagree with some of the sentiments but it doesn't take into account the fact that the Opposition has insisted on perpetuating myths about economic management that prevent Labor of expenditures such as further stimulatory measures. They're staying stagnant because politically they have to.

One thing worth remembering is that it was Howard and Costello that rested on the laurels of the Mineral Boom and the delayed benefits of floating the Australian dollar. Individually, Australians were actually taking home a smaller percentage of GDP in 2007 than they were in 1996. Basically, they were worse off.