Australia needs a good budget deficit
The Prime Minister has called on business groups to stop "virtue signalling" and to focus on the main game. Hear, hear! And not before time. For too long business peak bodies have concerned themselves with symbolism and ignored economics. It’s time to get real.
Private sector growth has been flat or in recession for the past 12 months. Private sector productivity growth is at record lows. But much like the Morrison government, business peak bodies remain hung up on symbolic fights about the corporate tax rate and union power when Australia’s system of dividend imputation and 9 per cent private sector union density make such issues irrelevant at the macroeconomic level. Even Treasury’s modelling of the company tax cuts showed benefits that looked more like rounding error than real reform.
If it wasn’t for public spending, Australia’s 28 years of uninterrupted GDP growth would have been interrupted by the Morrison government. Thank God for the public sector. But in the topsy-turvy world of Australian "economic debate", the government and the business peaks are more interested in the symbolism of delivering a budget surplus than debating the stimulus benefits of a well-planned budget deficit.
Australia needs a budget deficit. Even the governor of the Reserve Bank is calling on government to be more active with fiscal policy. For now, Scott Morrison remains more concerned with the symbolism of a surplus than cyclical fiscal policy. There are many good options to choose from, but when it comes to macroeconomic management, delay is deadly.
After 25 years of failure to do so, it’s time to significantly boost the pittance that we pay to the unemployed. From a macroeconomic point of view there is no better time to put money into the pockets of those with the least than when the economy is slowing. There is no trade-off between what the economy needs and what fairness requires.
And after 25 years of underinvestment in infrastructure, now is the time to invest in one-off projects that will deliver benefits for decades. Instead of taking advantage of record low interest rates to crack on with nation building, the Prime Minister is using a skills shortage as an excuse for inaction.
If now isn’t a good time to build the schools, hospitals and public transport that the approximately five million new residents moving to Australia in the next 25 years will use, when is? Should we wait until the labour market tightens and interest rates start to rise?
The Coalition government is like the dog that finally caught the car it was chasing. Union density and wage growth have been crushed, the budget is forecast to deliver a surplus and they just passed $300 billion worth of tax cuts. But after six years of the Coalition in office, unemployment is rising, productivity growth is stuck in the doldrums and the private sector is in recession. It is only a matter of time until further cuts to public spending push the public sector into recession as well.
But rather than listen to the RBA’s advice about fiscal policy, the Australian Competition and Consumer Commission's advice about energy or the Climate Change Authority’s advice about climate policy, Morrison is now blaming chief executives for speaking freely about climate change, same-sex marriage and Indigenous reconciliation for the state of the economy. While distractions have an essential role in modern politics, the age-old wisdom of avoiding fights on too many fronts also has something going for it.
CEOs can’t, and won’t, stop talking about the need for effective climate policy for the simple reason that the Coalition’s obsession with the symbolism of carbon pricing and renewable energy has pushed up energy prices. CEOs can’t, and won’t, stop talking about the need to treat all people with respect because they need to attract and retain the best staff and ensure large groups of employees work well together. Race baiting and creating community division might help win elections but it doesn’t help companies succeed. Most CEOs don’t care about fighting with unions because 91 per cent of private sector staff aren’t in a union.
After six years in government, there are 712,900 unemployed people, the private sector is shrinking, and retail electricity prices are 12 per cent higher than when the Coalition took office. The Prime Minister is right, it is time to stop the virtue signalling. Let’s stop demonising the unemployed, refugees and renewables, and start taking fiscal policy, energy policy and climate policy seriously.
Richard Denniss is chief economist at The Australia Institute.