Post budget, and post election, what's next?
Leading economists have said it was a thumbs-down budget (one describing it as “the most economically destructive and irresponsible by a government in our lifetime”).
Note, this was said in the context of weak economic growth, increasing cost of living, and rising inflation predicted next year because of President Trump’s tariff shenanigans.
Thus, well might Australians wonder about their financial future irrespective of who wins the election on 3 May.
Indeed, concern is heightened by the government’s promised vote-enticing tax cuts for anyone earning more than $45,000 a year that will cost $17b in lost government revenue over five years, when national debt is already expected to top $980b by the end of this year.
Treasury’s prediction that real federal government spending will increase by an average annual rate of just 1.8% over the next three years doesn’t sound too bad, until it’s realised the growth rate it’s already 5.7%, far about the long-term average.
And people want to know the significance of this to their businesses and their households. They also want to know what ultimately words like “uncertainty”, “stock market volatility”, and “trade war”, being bandied about endlessly in the media, will mean to them in the long run.
They feel need to have at least a rough appreciation of current chaos to have any hope of providing substance to planning they might want to make for the future.
Pointers to what’s next
Careful reading of the budget papers reveals its attempt to paint a rosy picture for the Australian economy that ignores a catalogue of obvious risks to modest expectations of economic growth.
But everyone with nothing more than a mild interest in current affairs, would be aware war in Ukraine, a slowing Chinese economy, resurgent tensions in the Middle East and the excesses of Trumpism can’t be doing the global economy any good – and that can’t be good for Australia.
In fact, economists are predicting the longest stretch of below-average growth since the early 1990s, while the Bank of International Settlements (BIS) says part of Australia’s productivity slump can be explained by investment failing to keep pace with strong net overseas migration. (Australia’s GDP per capita and productivity growth collapsed after net migration dramatically increased from 2005.)
And now, just when it looks as though Australia may be overcoming inflation, BIS warns that weak productivity growth can regenerate it alongside sluggish economic growth. (BIS is an international financial institution offering banking services to national central banks and a forum for discussing monetary and regulatory policies. It’s owned by 63 central banks and provides independent economic analysis.)
In sync with the BIS claim that “in the longer term, persistent weakness in productivity means lower potential for growth”, Australian economists are saying there’s absolutely no chance that enough investment is in sight to accommodate current immigration, and that the nation’s immigration ‘Ponzi’ economy is a literal recipe for decades of economic stagflation.
So, there you have it, an unpalatable answer for Australians to their question of what’s next post budget and post election.
A shared bleak outlook
A new survey conducted for Melbourne’s Herald Sun by Redbridge shows Australians generally fear for the economy’s future, as do expert economists.
Most Australians now believe they’ll be worse off in five years than they were before the pandemic, those living it outer suburbs being twice as likely to have a pessimistic view of the future.
The latest figures of which Macks Advisory is aware, show only 24% of people voting on 3 May will believe they have a better standard of living now than they will in 2030, 41% believe things will be “worse” or “much worse” by then, and 25% think things will be neither worse nor better for them five years hence.
Other of Redbridge’s revelations:
Young people aged 18-34 are far more likely to be optimistic about the future.
- Voters between 50 and 64 are most likely to feel they’ll be worse off in five years.
- People who say they intend voting Labor are generally more positive about the future.
- Those declaring an intention to vote for the Coalition, Greens, or other parties are more likely to be negative about their futures.
Australian Council of Social Services chief strategy officer Edwina MacDonald in a recent media statement summarised the disenchantment of many pessimistic voters when she said: “Both sides of politics are talking about the increasing cost of living but are failing to deliver solutions that help the greatest number of people most in need.”
Auditing government finances
The Albanese government shouldn’t be solely blamed for all the nation’s pessimism (Donald Trump and China’s economy are serious contributors), but an audit of federal finances commissioned and published recently by The Australian Financial Review has led prominent independent budget watcher and economist Chris Richardson to some damning conclusions.
He says Treasurer Jim Chalmers’ projections for spending restraint in coming years are “unrealistic”, that the government has become increasingly reliant on taxing workers and has “squandered a record surge in revenue to fund a series of expensive and stupid policies that has accelerated spending towards half a billion dollars a day”.
Mr Richardson says the government’s unexpected $400b revenue boost since winning the election three years ago – a windfall due mainly to high inflation and a sharp rise in commodity prices following Russia’s invasion of Ukraine -- was “squandered” in the budget.
He says “budgetary luck” of the revenue windfall has allowed Dr Chalmers to deliver successive surpluses, while enticing the government to make unwise risk-averse permanent spending decisions based on something that bears all the signs of a one-off lucky break.
It's bemusing to ponder but impossible to know, how much, if anything, of the above will be in the minds of voters on 3 May, but least we can feel we’ve met an obligation to newsletter readers in trying to warn of what could well be ahead of them for decades ……economic stagnation irrespective of how they vote.
