Down the rabbit hole of surplus politics
It doesn’t take long, in election years, before every galah in the pet shop is squawking about economic management.
So let’s get one thing straight from the outset: it doesn’t matter if the budget is in surplus this year, or even next year. No economist worth their salt thinks it matters.
The International Monetary Fund doesn’t think it matters, reporting last November that: “In the event of a sharp deterioration in the economic outlook, and hence revenue underperformance, delaying the return to surpluses could be an option, given Australia’s modest debt-to GDP ratio.”
So the next time you hear someone obsessing about a budget surplus – including journalists – chances are they are simply avoiding tackling the tougher questions that actually matter for the economy.
Our politicians are chasing each other down the rabbit hole of surplus politics again this week.
Having back flipped on delivering a budget surplus this year, the Gillard government is being more than a little bare-faced in trying to get political mileage out of the Coalition positioning to do the same.
It’s time to call a ceasefire on these budget surplus games.
The measure of good economic management is not some penny pinching balancing of the books – particularly not the sort of pea and thimble tricks the Gillard government has been playing to get the surplus over the line in recent years.
Sure, a surplus would be nice, and both sides of government should remain committed to delivering a surplus, on average, over the economic cycle – as, indeed, they both are.
But the true yardstick of good budgeting is not about headline numbers - provided taxing and spending are not wildly out of line with each other - but rather the efficiency of taxing and spending.
Taxes should be raised in a way that least distorts economic activity, by being targeted at immoveable things like mineral resources and consumption (the GST) and away from mobile things, like labour and companies.
Government spending should be directed at either providing a decent social safety net of health care and welfare, or on things that boost the economy’s productive capacity in the long term, like education, infrastructure, and even law and order.
Spending which doesn’t do this – like wasteful welfare for the rich or war toys for the boys in Defence - should be cut, no matter the time of day.
Conversely, spending on things that boost the future productive capacity of the economy should always be a priority, no matter the budget balance.
Two Reserve Bank board members, Heather Ridout and John Edwards, recently took the extra-ordinary step of speaking publicly about the need for substantial investments in infrastructure and education as the mining boom peaks later this year. They did so because I contacted them asking what they saw as the major challenges ahead for the economy.
Indeed, as the election approaches, voters should judge the economic policies of both parties on how well they position the Australian economy for a post-mining boom world.
The Coalition took a first stab this week with its 50 page “our plan” document. Sure, it was light on for details, packed full of motherhood statements and heavy on repetition of the words “safe” and “secure”.
It correctly identified boosting productivity – output per worker per hour - as the key priority for the economy. Unfortunately, it goes on to talk mostly about boosting workforce participation. In fact, by drawing more unemployed, elderly and young into the workforce, many of the Coalitions policies outlined would actually reduce average output per worker per hour.
The strongest element of the Coalition’s plan is its focus on urban infrastructure. “You will see cranes over our cities,” it says, echoing the sentiments of the Reserve Board members.
“If workers spend less time in traffic jams they will have more time at work and more time with their families.”
As the mining construction boom winds down, a renewed burst of spending on urban infrastructure, like roads, rail and airports, would not only create jobs, but improve the productivity of all urban workers.
Both the Coalition and Labor have already made piecemeal commitment to particular projects in various states. The Coalition has committed to draw up a priorities list and construction timetable within 12 months of election.
But both parties need to go further. A holistic approach would include harnessing the savings locked up in superannuation accounts to invest them in long term urban infrastructure. The government’s advisory body, Infrastructure Australia, should be beefed up and able to advise on all worthwhile projects in Australia – like a second Sydney airport - not just those submitted to it for approval.
Australia will also need a more diverse economy now the mining boom is easing. We should remain a producer of high tech manufactures. But doing so doesn’t mean heavy handed industry assistance packages designed by bureaucrats. If bureaucrats were any good at developing innovative business plans, they wouldn’t be bureaucrats, they’d be wealthy businessmen.
Investing in education is the single best hope we have of creating the educated and free-thinking entrepreneurs this country needs to design and craft an economic future for Australia after the mining boom.
It’s time to rise above short-term budget games and focus on ways to secure the long term economic interests of the nation.
We can’t afford not to.
Jessica Irvine is National Economics Editor. Email: firstname.lastname@example.org Twitter: @Jess_Irvine.
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