By Mike SeccombeOctober 11, 2012
What’s that you’re hiding? Your own version of the Federal Budget? Here we give you the tools to take on Wayne Swan at his own game.
If anyone in Australian public life has cause to ruefully reflect on the old political adage that elections are a democratic means of determining who will get the blame, it is Wayne Swan.
I mean, really, how unlucky can you get, as to inherit the Treasury portfolio in 2007? Even if you don’t like the man, a fair-minded assessment of his circumstances must warrant sympathy.
He comes into the office just as the biggest financial crisis in almost 80 years hits the world economy. Swan — or more correctly perhaps, the econocrats who work for him — do exactly the right thing and respond by pumping money into the system to avert the recession, which hits virtually every other country.
And he gets bagged for it. His political opponents slam him for deficit budgeting. They contrast this with the surpluses they ran when they were in power.
It’s all the more galling because when the Liberal party was running the show all through the boom, which led ultimately to global financial disaster, economic management could not have been easier. Money was coming in faster than they could waste it.
Indeed, they effectively booby-trapped the Treasurer’s office.
Years before it lost power, the Howard government had pretty much exhausted its limited economic-reform agenda. Its last significant economic change, the GST, came in 2000. From that point on, the government entrenched itself by observing the credo of tabloid media and political populists: “fear and greed”.
First, fear: in 2001 Howard was gifted the War on Terror. Then it was asylum seekers; recall the slogan, “We will decide who comes to this country and the circumstances in which they come.”
Second, greed. With money deluging its coffers, the government plumped for electoral bribes such as tax cuts — the benefits of which were quickly absorbed into booming asset prices. The government’s profligacy was contagious.
As a 2011 Reserve Bank analysis of the preceding decade or so records: “In the late 1990s the rate of dwelling price growth accelerated and in the first four years of the 2000s prices increased at an average rate of 14 per cent.
“In 1990 Australia had one of the lowest household debt-to-income ratios in the developed world at 46 per cent. By 2000 it had doubled to 94 per cent and was similar to that in Canada and the United States. By the end of the 2000s, the Australian ratio at around 150 per cent of household disposable income was one of the highest in a group of comparable developed economies.”
And it was not just tax cuts. There were all sorts of targeted bribes, directed at subsets of the electorate. “My favourite [example of Howard wasting the surpluses] was an $800 payment to every apprentice to buy a tool kit,” says Nicholas Gruen, of Lateral Economics.
“Of all the giveaways, that struck me as the most bizarre, although not the most damaging, because it was only a temporary thing.
“The lack of imagination was a sad thing to behold. Every time they looked in the kitty there was another $5 billion of revenue for them, and over years and years they never ... had any idea what they wanted to do with it,” he says.
Granted, the Howard/Costello Government did salt a little away — in the Future Fund, for example. But all except the most anti-government economic thinkers broadly agree that too little was put away for the future, and too much was sprayed up against the wall.
This applies even among the more thoughtful in conservative politics. Malcolm Turnbull, for one, courted controversy earlier this year by suggesting that instead of unsustainable tax cuts, we should have put money into a sovereign wealth fund.
We won’t explore that issue again here; the point is that the Howard Government responded to cyclical good fortune by instituting structural change that would become a big problem when the cycle turned.
Which brings us back to Wayne Swan, who came into the job just as that happened.
No doubt he and the government have in some ways made it harder for themselves. In response to the criticism that it was deficit budgeting, Labor promised to get back in the black, ASAP — by 2012-13.
And so came the 2012 budget, with its projected paper-thin surplus. But things are not going to plan. The world economy has not recovered as hoped. The United States is making a painfully slow recovery, Europe is going backwards, and China is slowing. The resources boom may not be over, as the responsible minister, Martin Ferguson, declared in late August, but it also is slowing, and the prices Australia gets for its resource exports have fallen from their record highs. Some of these may bounce back, but coal in particular may never boom again, for reasons that are worth exploring in a separate story. To make things more difficult, the Australian dollar remains high, which in turn makes our other exports less competitive.
Historically, when Australia’s terms of trade fall, so does the value of our currency. But that hasn’t happened this time, despite the repeated cutting of interest rates.
Bottom line, we’ve got problems. Government revenue forecasts appear to have been optimistic. Budget cuts loom.
As Professor Ross Garnaut, one of the country’s leading economists, warned on ABC TV on Oct. 1, Australians might have to resign themselves to government spending “restraint” (let’s not say “austerity”) for a long time to come.
“Certainly the rhetoric from the Government about restraint in government expenditure is consistent with what’s required, and in fact in the last couple of years we’ve run very tight budgets by long historical standards,” he said.
“But this has to be maintained now for quite a long period of time and I think lots of Australians haven’t assimilated that.”
As to how that restraint should be manifested and what it means for future spending on promised initiatives, such as disability insurance, or dental care, aged services or education reforms, he said simply that it came down to “a matter of priorities”.
Which brings us, in a roundabout way, to the point of this story. What are the country's priorities? What are yours?
With a new interactive-data visualisation tool, The Global Mail is embarking on an experiment to establish what government spending priorities should be, according to you, our readers.
We’re not taking on the entire budget all at once; instead, we’ve selected a handful of the more contentious areas of spending on which you can flex your community-chest muscles. Using the online tool, you can see how many of your tax dollars go to military spending, to aid spending, to private and public schools, to dealing with asylum seekers and to subsidising fossil-fuel use by miners and others.
Then you can adjust government spending as you think appropriate (and, if you like, share it with other readers or your friends online).
This is just the start of a broader experiment in social spending choices. Over time, we hope to put before you, for your judgment, other parts of the Federal Budget. How will we all assess and redress the current balance?