Enough's enough: it's time to rethink government spending
Australian taxpayers can no longer afford to pay for the federal government’s profligate spending, especially on job-hiring for the public sector.
On 25 March Treasurer Jim Chalmers made much of the fact that his fourth budget shows a $117b reduction in gross debt for 2024-25 compared to the forecast of three years ago before Labor took office, and he says it’s a reduction that will avoid $60b dollars in interest payments over the next decade.
He would like everyone to think his competence alone had made this possible rather than a $42b boost in government revenue between the previous budget and this one.
The reduction has been enabled largely by way of an inequitable sleight-of-hand tax system together with surprisingly good prices for Australia’s commodities, but the eye-watering fact is that national debt will nonetheless reach $940b this financial year.
The bottom line for voters as they head for the polls on 3 May is they’re being asked to choose between two leaders trying to outdo each other with offers of financial Band-Aids supposed to ease cost-of-living pain – although both Athony Albanese and Peter Dutton have yet to fully outline a long term vision to repair a federal budget, forecast to remain in the red for the next 10 years.
Reality trumps denial
Thus, Macks Advisory finds no quarrel with The Weekend Australian’s INSIDE columnist Simon Benson who says, “whatever optimism Jim Chalmers seeks to inject into the budget, no form of denial will obscure the fact government spending has been unsustainable”.
However, we do take issue with the Treasurer’s apparent hypocrisy a few days before his budget speech, when he told the media: “Our economy is best when it’s the private sector powering growth and propelling us forward.”
For surely, he was aware that Australian Bureau of Statistics (ABS) figures show more than a third of 487,000 jobs created last year, were in government-funded industries like health and education, while national productivity collapsed to 2001 levels. (But let’s be clear, Macks Advisory is not against well directed increased expenditure in these sectors. However, more on that later.)
Where we’re at odds with Dr Chalmers, is when he hails strength in the jobs market as evidence of PM Anthony Albanese’s good economic management – the unemployment rate having been maintained at or close to 4% for more than a year.
Macks Advisory believes this claim of good economic management is devoid of credibility – for it is government spending at taxpayers’ expense that has maintained the job market, despite the Treasurer’s earlier statement that the economy is best grown by the private sector.
Reality is that public sector employment has grown 7.3% in recent months while jobs in the private sector have grown only 2.4%.
Furthermore, the nation’s declining productivity has shamed us globally (see article on “Why global disgrace of Australia’s productivity needs fixing urgently” in the 20 March 2024 issue of this newsletter).
It’s axiomatic that in a healthy economy it should be the private sector that keeps the unemployment rate down and steady, not the government.
About four months ago, in the 23 January issue of this newsletter, an article headed “Record government spending”, warned of dangers to an economy disproportionately reliant on government spending.
Now, 15% of all workers in Australia are government-funded employees, and they direct resources away from the private sector.
The result? While all this public sector spending has tended to counter weakness in the private sector and keep unemployment down, it’s also meant inflation-curbing interest rates have had to be kept higher for longer.
The need to resist temptation
When recent data indicated the government had $42b more revenue for this budget than the previous one, cynical expert observers said Anthony Albanese would nonetheless be unlikely in election mode to resist the temptation to splash cash widely – and alas it’s now all too apparent their intuition was right.
It’ll be interesting to see, come polling day, how many voters will be favourably impressed by headlines like the following in monstrous four centimetre-high type on page one of The Advertiser: “ ALBO’S $150 BILL GIFT” – referencing a legislated $150 subsidy to reduce households’ and businesses’ power bills.
While the PM has described this as “a responsible cash splash”, we wonder how many voters realise the subsidy is no gift, that as taxpayers, they’re paying for it. What’s more the government isn’t reducing their energy bills. These aren’t decreasing, they’re increasing – despite Labor’s core election promise to reduce annual power bills by $275.
While Macks Advisory is empathetic with those who say the government needs to spend more on the care economy than it has been spending, we also recognise the need to cut back public sector employment elsewhere to pay for it – and the budget hasn’t provided for this.
In the past 12 months during a slowdown in economic activity, three quarters of jobs filled in the so-called “non-market” were those in government-funded industries -- including 234,000 in health, 72,000 in education and 67,000 in public administration and safety. (Most workers in the non-market sector work for private employers – for example 90% of healthcare employees are in the private sector, but the industries in which they work are primarily government-financed.)
While all these government-financed jobs were being filled in recent months, 9500 positions were being lost in professional services, almost 22,000 in hospitality and wholesale trade sectors, plus additional loses in the media and technology sectors.
Significant jobs growth in government spending can be attributed to the ill-managed $49b National Disability Insurance Scheme, and employment in the aged care sector is also growing rapidly.
Macks Advisory doesn’t query the necessity for much of this growth, but if the government intends to increase lagging productivity, then it must limit growth of public sector employment relative to the private sector.
Focus for the election
It’s generally accepted amid the nation’s cost-of-living crisis that management of the economy will be a focus for the election, but economists are expressing surprise the vital need to raise low productivity which so vitally affects living standards, doesn’t appear to be an issue on the radar of many voters.
AMP chief economist Shane Oliver says key messages from the latest national accounts figures are that there’s a need to boost productivity and cap government spending.
“There’s a case for both sides of politics to go easy on election commitments, but unfortunately we haven’t seen a lot of that from Labor.”
David Gallant who is chief executive of Walker Corporation, now developing the $6b Riverlea project in Adelaide, says keeping skilled workers in SA and attracting new talent is critical for sustaining economic momentum.
It’s Macks Advisory’s belief voters in the state’s business community – our client base -- will be looking to favour a political party they believe can increase that momentum.
Mr Gallant believes “infrastructure investment must keep pace with growth, ensuring efficient transport links, modern commercial precincts and vibrant urban spaces that support business innovation and liveability.
“The potential for government to work with private industry to deliver infrastructure cost effectively is a real opportunity in SA.”
