Whenever an election approaches, we can expect the bulldust count to soar on claims about the prospects for the economy and, particularly, about how well the budget’s being managed.
Election campaigns inhabit a financial fantasyland, with both sides promising lower taxes, higher government spending and improved budget balances.
Our politicians have spent decades training voters to believe that, when it comes to the budget, we can have our cake and eat it.
It’s now pretty clear that, whether the federal election is held in March or May, Scott Morrison will be repeating the winning formula he used last time: the Liberals are the party of lower taxes, whereas Labor is the big-spending, big-taxing party.
You want lower taxes? Vote Liberal.
But take my tip. Whatever party gets voted in, and whatever tax cuts they’ve promised in the short term, over any longer period taxes will be going up.
Why? Two reasons, one general, one specific. And remember this: one of Morrison’s claims is to have abolished “bracket creep” – the way inflation causes you to pay a higher proportion of your income in tax. He hasn’t.
The general reason we’ll be paying more in tax is that, as the Australian Council of Social Services reminded us this week, “as people become wealthier, they expect better health, education and income support and modern public infrastructure.
“As the populations of wealthy nations age, we sensibly devote more resources to health and [aged] care.”
Just so. Where it concerns budgets, the notion of Smaller Government – lower government spending and lower taxes – was always a pipedream.
As the Economist magazine has written recently, “stopping further growth of government over the coming decades will be close to impossible. The most important debates to come will be about the state’s nature, not its size.”
Why is it that economists, business people and mainstream politicians unceasingly advocate economic growth? To raise our material standard of living. To give us more income to spend on the things we want, to improve our lives.
But here’s the trick: many of the things we want more of come from the government, or are heavily subsidised by the government. We pay for them indirectly, via the taxes we pay.
That’s true of health (doctors, medicines, hospitals), education (schools, TAFE and universities), all the various forms of “care” (childcare, disability care, aged care) and much else.
As our incomes rise over time, we spend more on some things but not others, as we see fit. Much of what we choose to spend more on comes from the private sector. Better homes, for instance. Not a problem, as young waiters say incessantly.
But when the things we want more of come via the government, suddenly there is a problem. What? You want me to pay higher taxes just because I demanded more and better health care? Outrageous.
We even have conservative politicians trying to tell us paying more tax for more health care is bad for the economy. Bad for jobs and growth.
What? Employing more doctors, nurses and other health workers is bad for jobs? Spending more on health is bad for growth? Are you stupid? It is growth.
Over the 30 years between 1991 and 2019, federal government spending per person grew at the rate of 1.7 per cent a year, after inflation.
What we got for that included the introduction of Medicare, pensions (but not unemployment benefits) linked to wage increases so pensioners’ living standards kept pace with the rest of the community, and introduction of the National Disability Insurance Scheme.
But get this. Between 2010 and 2018, the rate of real growth in federal government spending per person slowed to just 0.5 per cent a year.
And the budget last May projected that the rate of growth from 2022 to 2024 would be minus 0.7 per cent a year.
But the independent Parliamentary Budget Office warned in its recent review of budget projections to 2032: “Australians’ expectations about the volume and quality of services provided by government mean greater risks that [public expenditures] will be higher”.
That’s a bureaucrat’s way of saying “You guys have got to be kidding”.
The latest growth in real annual spending per person of just 0.5 per cent is unsustainable. The projected fall of 0.7 per cent a year is simply unbelievable.
The Morrison government has been trying to cover the cost of its various tax cuts by, as ACOSS and the community sector have said, running a “low-cost government”. It claims to have guaranteed the provision of “essential services” but, in truth, it’s been cutting corners and penny-pinching all over the place.
Its income support payments to people of working age, of just $45 a day, are well below the poverty line. We have a growing number of people who can’t afford housing, but the government refuses to spend on social housing.
The government imposes long waiting times for in-home aged care packages and other care services – which are often of poor quality. It seems to be yielding to pressure to reduce funding of the national disability scheme.
It has neglected to spend what it should on dental care and mental health care. Its privatised system of employment service providers has failed to reduce entrenched, long-term unemployment. It has allowed a decline in public and community education and training infrastructure.
It has failed to Close the Gap with community-controlled Aboriginal and Torres Strait Islander services.
And it’s made inadequate investment in the transition to a clean economy, disaster resilience and other help for people to adapt to global warming.
Governments can get away with this neglect for only so long before voters start pushing back and – as we saw with the big spending on aged care in this year’s budget, following the royal commission’s damning report – government spending has to catch up.
And where government spending goes, taxes follow – whatever false impressions pollies try to give us in election campaigns.
