You may have somehow missed the parties in the street but the Federal Budget is now effectively balanced for 2018-19 and about to enter healthy surplus territory for the current year.
Part of the reason for that lack of celebration is that the excitement is somewhat tempered by the fairly dubious economic circumstances that confront Australia.
Growth is slowing, unemployment is starting to kick up and the dreaded R word – recession – is being dusted off after 28 years.
There is also the fact that Australians in general are struggling under a mountain of personal debt, which is still difficult to pay off no matter how low interest rates go.
Is it really all that exciting that the Government’s bottom line is looking healthy when your own is looking sick?
That feeling was demonstrated by the final Budget figures which showed that the bottom line was boosted by $10.5 billion of extra income tax revenue (individual and company), thanks to the ruthless efficiency of the tax office in collecting cash from all of us and the bonus taxes flowing due to high prices for iron ore and coal.
The timing seems all wrong
They are all good reasons for the lack of enthusiasm around this budget turnaround but perhaps the biggest reason that a budget surplus just doesn’t feel right.
At a time when the economy is spluttering, growth is fading and the Reserve Bank is getting ever closer to cutting already record low interest rates further towards zero, this just doesn’t feel like the right time for the Government to just keep paying off debt and sitting on its hands.
A recession is not something anybody should be barracking for given that they have a nasty habit of wrecking the Federal Budget bottom line – as well as those of many families and businesses.
If anything, now is the time for the Government to be splashing the cash and applying some stimulus to the economy – something even Reserve Bank Governor Dr Philip Lowe has been suggesting for some time.
Morrison Government has applied some limited stimulus
To be fair, the Morrison Government has tried some stimulus in the form of the $1,080 tax refund which is now flowing through as people lodge their tax returns.
It also has further tax cuts planned but the question is, will they arrive soon enough to help rescue the Australian economy and keep it growing?
It is an open question, but perhaps the Government is working on some plans in the background that will get some money flowing through the economy more quickly.
Secret stimulus underway?
One of the indications of that is a new era of co-operation between the states and the Federal Government.
Victoria is a great example with Premier Dan Andrews and Prime Minister Scott Morrison in a much remarked upon “bromance’’, with both leaders paying each other compliments and speaking co-operatively on many issues.
With Victoria in the process of building and rolling out an extensive roster of major infrastructure projects, it is very much in Scott Morrison’s interest rate to grease the wheels in whatever way he can.
Infrastructure projects such as the metro rail tunnel, the north east link and the many rail crossing removals are a great way to provide jobs and shovel-ready stimulus – something which was noticeable in the latest jobs figures which showed that Victoria was one of the few states with an unemployment rate below 5 per cent, along with the ACT and New South Wales.
By removing any roadblocks to Victoria’s infrastructure projects or by reassigning funds, Scott Morrison can effectively share in the many benefits of the infrastructure stimulus coming from Victoria without paying the entire bill.
Existing spending can be ramped up too
Another way of boosting the economy is to boost spending on existing programs.
The most obvious one is the NDIS – the National Disability Insurance Scheme – which is one of the major reasons the Budget is in surplus anyway.
In the last year, spending on the NDIS was $4.6 billion under what was budgeted, which suggests that the implementation of the scheme is running way behind schedule and should begin the catch up at some stage.
Given that most NDIS spending would flow through to the economy in the form of goods and services for those with disabilities, it would also be an excellent form of stimulus as well as helping those less fortunate to live the best life they can.
Government spending on programs such as the NDIS has been a more important source of economic growth than usual, representing around half of all GDP growth, so increasing government spending on well-designed programs is important.
Why shoot for a Budget surplus?
Other than the poor economic timing, there are still some good reasons for the Federal Government to shoot for a surplus.
One of them is the political imperative – if you can keep the budget tight in the first year of your term, that leaves plenty of cash available to roll out in the form of policies that voters will like that will hopefully boost the chances of re-election.
Running a balanced or surplus Budget is also a good idea in terms of being fair to coming generations.
All Government borrowings are a form of bringing forward future spending because they are spending today by using taxes that will be collected in the future to pay off the debt.
If Government debt balloons too high, it is effectively an anchor around the neck of future generations because their taxes are being used to pay off debt that was accrued long before and possibly will not hold any benefit for them.
That is another reason why carefully selected infrastructure with a long life can be a good reason for adding to government debt but a cash giveaway may not – unless it averts a recession.
At the moment, Federal net debt is running at around $350 billion after rising from effectively zero a decade ago with the previous Labor and Coalition governments all contributing to its rapid rise so there is some justification in beginning to wind that debt back to be fair to future generations.
Naturally, it will take a long time until that debt is extinguished even with substantial Budget surpluses in the future.
It is also worth noting that the Budget is not quite in surplus yet, although it is expected to be in the year ahead.
At the end of 2018-19 the final budget numbers showed a deficit of $690 million, which is effectively in balance because that deficit is less than 0.01% of GDP.
If Australia can once again dodge a recession, there should not be any reason why the Morrison Government can’t have its cake and eat it too – stashing away some cash for electorally popular programs, running a modest surplus, ramping up spending on programs such as the NDIS and making a start on paying back government debt.