The budget delivered this week by the Federal government aims to get the economy ‘back to normal’. Is this the right goal? What if the old ‘normal’ was deeply flawed, as its political economic critics have argued?
When the pandemic first hit, the Morrison government talked about its determination to ‘snap back’ as soon as possible. Facing a deep and prolonged recession, we know that was never going to be the case. Yet the rhetoric about ‘return to normal’ remains pervasive. This may be emotionally reassuring but, from a political economic perspective, the goal is both unachievable and inappropriate. Even before the pandemic, the ‘normal’ situation in Australia was economically insecure, socially inequitable and ecologically unsustainable.
What we really need now is a government aiming for a recovery process that takes us towards a more secure, fair and sustainable society. That would require radical reform that is currently conspicuously lacking. If the latest budget policies are the best the government can do – and it has had to jettison its long-standing ‘debt and deficits’ fetish to even get this far – it falls woefully short of what is needed.
It’s not even clear that the recently announced budget is likely to get things ‘back to normal’ anyway. Cutting income tax in a way that mostly benefits people on high incomes probably won’t boost consumer spending much. At a time of such uncertainty, the propensity to save is very strong. So the tax cuts, as well as increasing inequality, are unlikely to generate much economic stimulus. Rather, as Ross Gittins argued in the Sydney Morning Herald, the tax cuts are really aimed at restore some electoral popularity (at least among the Coalition’s political base) rather than economic recovery.
Economists have recurrently pointed to the likely ineffectiveness of tax cuts as economic stimulus. Ignoring that advice shows the government’s cynical political opportunism continues to trump economic reason.
The very generous business investment allowances announced in the budget and the business tax cuts (from writing down past business losses) are also unlikely to produce a jobs surge. Policies like these are a form of discredited ‘trickle-down economics’, based on the claim that enriching the wealthier segments of society will lead to other people eventually gaining some benefit. The rhetoric is all about encouraging firms to create more jobs, but the reality is that the give-aways have not been made conditional on the businesses actually hiring additional workers. Jobs could actually decline in the medium-term if investment allowances to businesses, particularly big corporations, encourage them to use less-labour intensive forms of technology for their production processes.
Meanwhile, the planned withdrawal of the JobKeeper scheme and the failure to commit to maintain JobSeeker payment above the old NewStart level leaves huge numbers of people facing the prospect of poverty. If this is the ‘new normal’ it has a terribly old-fashioned ring – leave the wellbeing of low and middle-income people to the vagaries of market forces, while providing the relatively wealthy with corporate welfare.
Even the new subsidy to businesses hiring younger workers could have adverse effects for job security. The emphasis will be on jobs for only 20 hours per week. There is no longer term commitment. Older workers may become more likely to lose their jobs and will certainly find it harder to get any new employment. Overall, it’s a case of winners and losers, with little or no net benefit.
Of course, no-one really knows with certainty what the actual effects of the newly announced policies will be. The budget’s underlying economic and public health assumptions are highly questionable, particularly so in these fundamentally uncertain times. So the Treasurer’s spurious claims about policies creating particular numbers of jobs or future levels of government debt and deficits are all, at best, a stab in the dark.
The one thing we can be sure about is that the budget is a sadly missed opportunity for a planned public-sector led recovery. A more certain ‘bang for the buck’, as well as much greater social benefit, would come from funding major programs of social housing, publicly-provided affordable child care, public provision of aged care facilities, perhaps high-speed rail linking our eastern cities and encouraging regional development too. Most importantly, the government should be funding and organising a planned transition to a zero-emissions economy. None of these things have got a guernsey.
The case for a Green New Deal that directly targets our economic, social and ecological priorities has never been greater nor more urgent. Job creation would then be linked to restructuring the economy for ecological sustainability. Australia could become a global leader rather than a conspicuous laggard in making this transition. Making it a ‘just transition’ would also require embracing more egalitarian policies to reverse, not accelerate, the drift towards ever-increasing inequality in the society.
The government may have abandoned its long-standing ‘debt and deficits’ fetish – indeed, it has had to do so, driven by the economic reality – but its budget for the year ahead shows it is incapable of embracing the comprehensive reforms that really need to be made.