The crisis no one is talking about
The budget to be delivered later this month, and the election campaign which will start in earnest the following month, is going to provide us with more evidence of spiralling government spending.
As a nation, we are already living beyond our means, yet both the budget and the election campaign will include new spending which simply isn’t sustainable.
Worst of all – this is a bipartisan problem. Neither major party has taken the structural deficit embedded in budgets for many years now seriously enough.
Future generations will suffer, because they will be the ones who hit income-earning ages when debt levels will need to be paid back. Paying for new spending initiatives can’t keep being funded by an accumulation of debt into infinitum.
Rather than helping to alleviate some of that strain – which is over the horizon right now – by reducing our spending-to-GDP ratio in the coming budget, the major parties continue to find new and inventive ways to spend money they don’t have.
The answer to Australia’s fiscal mess is major tax reform coupled with a cultural adjustment towards spending restraint – but neither of these difficult fixes suit politicians chasing votes.
Three-year parliamentary terms worsen this phenomenon, putting the country in a near-permanent election campaign. But do we really want four-year terms without an acknowledged change in attitude among political leaders to go with it?
Spiralling government spending will be the theme of the next budget when it is delivered by Treasurer Jim Chalmers (right, with Prime Minister Anthony Albanese in Brisbane last week)
I’m not just bashing Albo. Peter Dutton and the Liberals aren’t tackling the issue either as both major parties throw everything at winning the next election regardless of the consequences
There is no evidence they would do more with an extra year of not having to face voters.
We’ve already seen a massive injection of new cash announced for Medicare – more than $8billion over the next four years. Whether it’s necessary or not, it’s unfunded other than by growing more debt.
Now Labor is planning more energy relief handouts to go with the ones already distributed over the previous two years. The PM alluded to it in an interview this week.
The sum total of this extra spending amounts to billions of dollars the government doesn’t have. So the spending gets put on the national credit card, again adding to debt levels.
Then we have a $60billion blowout in spending to protect WA from variations in GST payments, if you can believe that.
That’s money that could have instead been earmarked to reduce the federal government’s debt. WA is currently the wealthiest state in the Commonwealth, running healthy surpluses year after year.
The decision to adjust GST calculations in WA’s favour, initially made by the Morrison government before being extended by the current Labor government, was all about trying to win votes in the west.
Economists and policy practitioners have slammed it.
Government overspending – whether it be NDIS, energy relief handouts or the massive Medicare injection which the Opposition has pledged to match – will end up punishing future generations, as well as retirees, warns Peter van Onselen (stock image)
The costs attached to the NDIS continue to blow out to the tune of tens of billions of dollars. Remember when its introduction was hailed as a moment of policy greatness?
Despite efforts to rein some of the increasing costs in, the drain of NDIS recurrent expenditure on the budget only grows.
We’ve also seen Labor forgive 20 per cent of HECS debts and move to make attending TAFE free. All thrown on the national credit card, of course.
Now the major parties are even talking about finding a way to include universal dental care within the envelope of universal health spending. Such a move would put more pressure on the nation’s finances, if it happens.
And we haven’t even talked about all the new defence spending forecast for the coming decades, right at a time when the cost of servicing national debt has never been higher.
So how do we pull ourselves out of this mess all of our own making?
Services will have to be cut, so younger generations won’t receive the support from government they took for granted while growing up.
Taxes might have to go up too, especially if tax reform keeps getting put in the too-hard basket.
Retirees will also find life harder in the decades to come because of the decisions being taken now. Their tax burden will go up, meaning the days of self-funded retirees planning for their post-working lives with any degree of certainty are over.
It is hard not to sensationalise the problems of continued overspending because they are sensationally bad. As a percentage of GDP, government spending is now 26.6 per cent and rising. For context, governments used to aim to keep spending below 25 per cent, and below 23 per cent before that.
Before the rise of the welfare state and its expansion into various facets of our lives, government spending was much lower.
Retirees will also find life harder in the decades to come because of the decisions being taken now. Their tax burden will go up, meaning the days of self-funded retirees planning for their post-working lives with any degree of certainty are over, writes PVO
The change has happened because voters want more from their governments, but the cost of getting more from the state has to be borne out of higher taxes (which have kept going up). If higher taxes doesn’t cover all the new spending (which it currently doesn’t), growing debt levels makes up the difference.
But this quite obviously can’t go on forever. At some point in time, D-Day will arrive, when living beyond our means can’t continue.
That moment can be forced on a nation by loan defaults if even just paying the interest on debt becomes impossible. That represents the moment in time a nation becomes a failed state.
Fortunately, Australia is nowhere near being at that point.
The realistic moment Australia will have to wake up to the negative impact high levels of debt have on all of us will be when servicing it requires other cuts to be made.
That moment is fast approaching.
Did you know that with Aussie debt levels where they currently are, paying the interest alone each year is already one of the top three most expensive line items in the budget?
That’s before you even contemplate diverting spending into paying down the debt.
Yet, as Newspoll this week revealed, 80 per cent of voters are in favour of higher spending to help address cost-of-living pressures.
How can any politician challenge that sentiment?
The figure is so overwhelming that it highlights how lost we are to the reality of needing spending restraint for the sake of future generations.
We are leaving them a fiscal burden that is locking in the likelihood that their standard of living will be below what we’ve enjoyed throughout our lives.
And that is a shameful legacy to leave behind.
Labor’s U-turn on ‘fixer’ Albo
How does Anthony Albanese prove that he ‘shows up, takes responsibility and works with people to fix problems’? I would suggest not by removing that very pledge from Labor’s official website.
Yet that’s exactly what happened this week.
On Monday, those words were blazoned across the Labor Party’s official website, as you can see.
By Friday, however, they were gone, as was the promise that ‘Labor won’t shy away from the challenge’. They were instead replaced by a series of bullet points listing so-called achievements – all of which are just more unfunded government spending, by the way.
Then: On Monday, Labor’s official website trumpeted Albo as a Prime Minister who ‘shows up, takes responsibility, and works with people to fix problems’
Now: Those glowing words have since vanished. Is the Labor Party trying to say their leader is not a man ‘who shows up, takes responsibility, and works with people to fix problems’?
It is ironic that promises to show up, take responsibility and fix problems were taken down in the same week we found out energy prices are going up by a whopping nine per cent and American tariffs on Aussie exports are set to come into effect despite hopes that Team Albo might be able to stop it.
The PM didn’t fly to the United States to challenge Donald Trump’s tariff plans. That’s certainly not evidence of ‘showing up’.
When asked about this week’s rising energy prices contradicting Labor’s promise at the last election to bring power bills down, the minister Chris Bowen refused to concede it’s a broken promise. That’s not ‘taking responsibility’.
As for ‘fixing promises’, with Australia’s standard of living falling over the past three years, during which time a dozen consecutive interest rate rises made the cost-of-living crisis worse, perhaps Labor deserves credit for taking that particular pledge down, since the government clearly hasn’t fixed much at all.
