The key purpose of a governments budget is to propose the spending on essential government services and how that spending will be financed. Judged by this standard, the latest Budget is completely inadequate and belies the claims of the Morrison Government to be competent economic managers.

The provision of essential services

Ever since it was first elected back in 2013, the Coalition Government has regularly repeated its guarantee of essential services. The Treasurers recent Budget speech contained yet another reminder of this guarantee.

But what is this guarantee worth? Not much judging by the findings of two Royal Commissions into Aged Care and Disability Support Services.

However, those findings referred to the past and only covered two, albeit important, sets of essential services. The recent Budget lays out the future funding for all government services enabling a more comprehensive assessment of the adequacy of this funding over the life of the next term of the Coalition if it is re-elected.

One problem, however, in making any such assessment is that government spending data since 2019-20 have been distorted by the need to respond the Covid pandemic. This response led to a surge in expenditures on many government programs, but much of this expenditure was deliberately temporary, and it therefore distorts any interpretation of the underlying trends in expenditure.

For this reason, this assessment first calculates the increase in spending on key services over the first six years of the Coalition Government from 2012-13 to 2018-19 (prior to the outbreak of the Covid pandemic). Second, the forward estimates of program spending in 2024-25 are used to calculate the increase in spending between 2018-19 and 2024-25, when it is assumed there will be no longer be any impact from Covid, and the Covid-affected intermediate years in between are thus ignored.

By comparing this second set of funding growth rates with the first, it is then possible to determine whether the Government is planning to lift its funding of key essential services in the future compared with the past, and thus get a better-informed idea of the funding adequacy.

The key points that emerge from this comparison (see Table 1) are as follows.

First, by the end of the second period in 2024-25, total budget spending is expected to have grown faster than it did in the first period between 2012-13 and 2018-19. Consequently, total budget outlays also increase more as a share of GDP.

Indeed, notwithstanding the Governments commitment to expenditure restraint, budget outlays are higher as a share of GDP in the normal years, 2018-19 and 2024-25, than they were in the last year of the Gillard/Rudd Government (2012-13). Although that probably indicates that the funding demands for essential services are likely to always grow faster than GDP; not that the Coalition has been too generous.

Table 1 Australian Government spending on key essential services

In fact, notwithstanding this acceleration in total Australian government spending in the second period, not much of it is flowing through to the key essential services of education and health.

The funding for tertiary education is expected to continue to fall. School funding will increase its share, but not as fast as in the first six years of the Coalition Government. While the rate of increase in health funding is expected to halve.

Investment in skills and training is alleged to be a key part of the Morrison Governments so-called Plan for the Australian economy, but that claim is belied by the continuing fall in funding for tertiary education. Admittedly the average annual 3.4 per cent real increase in VET funding between 2018-19 and 2024-25 is quite fast, but after allowing for inflation the real funding for universities is expected to fall at an average annual rate of 1.2 per cent in the six years ending in 2024-25.

This planned funding fall for universities cannot be consistent with any genuine plan for the Australian economy. Rather it looks like another exercise of the Morrison Governments prejudices against intellectual elites.

While the increase in VET funding includes substantial funding for employer subsidies, but research questions the effectiveness of these subsidies. The reality is that there are 173,000 fewer apprentices and trainees in training today than in 2012, and the number completing their training has declined by almost two-thirds since 2013.

Interestingly, the rate of increase in schools funding is the same for both government and non-government schools over the second period ending in 2024-25. However, given that the government schools are much further behind relative to their resource standards, it is arguable that the increase in their funding should have been higher.

The Morrison Governments planned increases in funding for aged care and childcare are quite high. Nevertheless, the funding increase for aged care will not be sufficient to fulfill the aims of the Aged Care Royal Commission. As Stephen Duckett, the former Head of the Health Department put it in his comment on the Budget: 2022-23 is a standstill year for health and aged care. Nor will the funding for childcare be sufficient to support an expansion of the hours that it is profitable for the mothers of young children to work, which would have enormous benefits for them and the economy.

The planned real increase in defence funding at an annual average rate of 2.4 per cent also seems very low relative to the threats that the Government itself has identified. Again, what we have is lots of announcements about future purchases of military hardware, but they are years away, and in the meantime Australia faces a yawning capability gap.

Finally, there is the adequacy of income support provided by the government to those whose incomes are inadequate to ensure they do not live in poverty due to no fault of their own. Two areas stand out where this support is inadequate: the amount of JobSeeker and rent assistance. There is strong public support for an increase in the JobSeeker payment and as rents are rising exceptionally fastit is most regrettable that neither the Coalition nor Labor are proposing any increase in either payment.

As argued above, even the present elevated level of government spending as set out in the latest Budget is inadequate to ensure the provision of essential public services. Significantly more funding is required to adequately fund the services that our society demands. Furthermore, many of these services, such as tertiary education and less costly access to childcare, are vital to our economic performance.

But even this inadequate level of funding for essential services is being paid for significantly by borrowing with a projected budget deficit as high 3.4 per cent of GDP in the forthcoming financial year and continuing deficits forever after. As argued in another article on Morrisons economic competency (Pearls & Irritations, ) private demand in the economy has now fully recovered, and these projected budget deficits will lead to excess demand and unacceptable inflation.

The inescapable conclusion therefore is that whoever is the next government, they should be considering the best way to raise the necessary additional taxation revenue to properly finance its expenditure responsibilities without adding to inflationary pressures.

Total revenue of all Australian governments is lower as a proportion of GDP than the equivalent ratio in all other OCED countries, except Ireland and the US, and the only reason why the US is lower than Australia, is because it is running a bigger deficit, which is equally unsustainable. So, there is no good economic argument that we cannot afford to raise more revenue, rather the reverse.