What will we do when the fastcash euphoria is over?
Research indicates that many lottery winners revert to their previous levels of happiness within a year of winning. Sometimes it’s a case of water finding its level and individuals returning to their normal state of contentment.
Other times, the money is blown on failed business ventures, opportunist gold digging relatives or the vulgar excesses that often accompany easy cash. In such circumstances, it’s not uncommon for winners to end up worse off than before they won.
Two years ago the Federal government had money in the bank. Howard and Costello had built up a massive buffer of savings to pay for an ageing population, retired the entire Commonwealth debt and budgeted for - if not already delivered - eight years of income tax cuts.
But none of this was due to the reforms, the budget discipline, the tough decisions or hard work of the Rudd government. And so it was, not having earned the windfall they inherited, they treated the surplus with an ‘easy come easy go’ contempt. Consequently, it took just under a year to eliminate their good fortune and return the budget to a more normal state of duress.
Rudd and Swan had made the fundamental mistake of believing their own hyperbole. They thought that economic prosperity was something that just happened and the consequent rivers of cash meant ‘fiscal discipline’ was an adjective, not a verb.
Sadly, they didn’t stop to ask Anna Bligh or Nathan Rees how their budgets were bereft long before the global financial crisis, in spite of governing through the much hyped commodities boom.
When the crisis did arrive, the ever populist Rudd seized on the opportunity to share the sense of lotto win euphoria by sending out $900 cheques. More promisingly, he also fast tracked spending to address the oft lamented ‘infrastructure bottlenecks’ which he said were holding back productivity growth.
But like a lottery winner who decides to replace their Datsun 180B and is up-sold to a yacht, Australia will emerge from the downturn well placed to tackle any traffic congestion, water shortages or queues at ports which have been caused by a lack of netball courts or a dearth of duplicated school halls.
On latest forecasts, the federal budget is now in the red to the tune of $32 billion this year, $57 billion the next and net Commonwealth debt will be in excess of $10,000 for every man, woman and child by 2014. As the researchers said, some winners end up worse off than they were.
In spite of a budget that the Prime Minister claimed was ‘tough as hell’, the budget bottom line is clearly spiraling out of control. The size of government that was a sustainable 24 per cent of GDP at the end of the Howard years has hit an historical high of 28.6 per cent of GDP.
Last time the Federal budget looked anything like this was at the end of the Keating government. When new Treasurer Costello sought to rein in a now comparatively modest $8 billion deficit by cutting spending, it’s fair to say Labor wasn’t supportive.
Lindsay Tanner said Costello’s first budget was ‘mean and nasty’. Jenny Macklin described some budget measures as ‘betraying’ what were then called ‘working Australian families’.
Current Defence Minister John Faulkner upped the ante and described it as ‘mean minded’ and a ‘downright disgrace’, urging the Senate to ‘reject the government’s unnecessary, savage and ideologically motivated cuts to services’. Martin Ferguson said the measures ‘marked the end of an era in which Australian governments have tried to achieve full employment’.
With these people now in Cabinet, it is little wonder the Rudd Government has taken a sit back, keep spending and hope tax revenues eventually exceed outgoings approach to balancing the budget.
This is ok whilst debt is still relatively low but it’s an unlikely path to fiscal recovery.
Consequently, the Government will be looking for a sure fire way to pay the interest on its debt and put the budget on a sustainable footing in the near future. The bad news for Australian working families is that raising taxes is a far more certain option than winning the lotto a second time.
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