Parliament returns next week for the Budget sitting. Usually held in May, the Budget is the Government’s financial plan for the year ahead. In it, the Government tries to predict what the economy will do and what amount of revenue it will offer the Government. It also outlines the Government’s plans for spending. In making its spending decisions, the Government also determines whether it’s prepared to run a Budget deficit or shoot for a surplus. A surplus allows a government to put money away in the good times as a buffer for more difficult times. These are certainly difficult times.
On Tuesday Josh Frydenberg will announce the biggest Budget deficit in living memory. I won’t be critical, because desperate times call for desperate measures. Having said that, the Coalition likes to be seen as the party of budget surpluses, yet it hasn’t delivered one in seven years. Some will say ‘nor did the last Labor Government’, but we too, faced extraordinary times; it was called the Global Financial Crisis.
This week the Government began to wind back both JobKeeper and Jobseeker. Each enjoyed bi-partisan support, and each helped saved lots of jobs and helped us to avoid greater economic calamity. Is it right to be winding them back? It has to happen sometime but is too soon?
The risk of winding them back too quickly is that while it saves the Budget some spending, a weaker economy could cost the Budget more as tax revenues fall and welfare payments increase overall. Having said that, it’s hard to know when the right time is until you try it. It’s not any easy question.
I believe there would be more support for the winding back of COVID-19 payments if the Government had a clear stimulus plan to off-set the loss of additional COVID-19 payments. JobKeeper helps by both keeping people in work and giving people money to spend in the economy. A more generous Jobseeker also increased spending. It is the latter that needs to be replaced.
The best option for an alternative for stimulating the economy is infrastructure spending. Infrastructure investment in shovel-ready projects immediately creates jobs, gives people money to spend and creates long-lasting benefits. Hopefully the Treasurer heads down this path on Tuesday night. If he doesn’t, it will be a terrible mistake.
In each of our townships there is a number of infrastructure projects which could be constructed quickly if the funds were available. Each Council has a list of projects which would be of great benefit to the community. Roads, bridges, draining projects, cycleways, and sporting fields are typical examples.
On a grander scale, projects like the next stages of the New England Highway up-grade including the Singleton by-pass could be brought on quickly. More broadly, water infrastructure projects could be considered to prepare us for the next drought. Labour-intensive projects could be designed to better prepare our landscape for the next round of bushfires.
On Tuesday night Josh Treasurer might offer tax cuts. Tax cuts are always welcome, but they need to be designed to offer maximum stimulus and that is best achieved by weighting them more towards the lower paid who are most likely to spend the money rather than save it. They should also improve incentives to earn more, across income brackets.
This coming Budget will be amongst the most important we’ll experience in our lifetimes. Let’s hope the Government gets it right.