The belief and message behind Treasury leaks
Readers of this newsletter, especially if they’re members of the business community, are likely aware Treasury documents, recently said by the media to have been “leaked”, have spotlighted a fearsome economic challenge.
The leak’s harsh message seems to be that Australians must, through pressure applied by industry organisations and Members of Parliament, either cause the federal government to curb its spending or prepare themselves and their businesses for substantial tax increases.
That’s unless they’re willing to have their tax payments spent to maintain a government that runs ongoing Budget deficits boosted periodically by massive borrowing to overcome inevitable challenges of weak areas in the economy arising from domestic and global events.
The Japanese opted for this course of action when faced 20 years ago with an economic situation like that now confronting Australia, and their government last month became burdened by a long-term interest rate weightier that any it’s carried for decades.
Herein lieth the lesson
Clearly, the lesson Australia should take from Japan’s current economic outlook is that using government spending as a means of avoiding reality, simply doesn’t work.
And clearly, whoever choreographed the leaking of key Treasury information did so hoping the unhappy picture it paints would compel Australians to force their government to at least use spending restraint to stabilise the Budget.
Unquestionably reality dictates this should be the first step towards Australia once again operating an economy that can adapt to an ever-changing world, one that can maximise technology to turnaround badly lagging productivity to boost declining living standards.
Ultimately the federal government must accept the reality that higher taxes and bigger deficits aren’t going to stabilise the Budget.
What the leak revealed
The government’s involvement in maintaining the economy has increased at the most rapid rate since 2017.
According to 2025 March quarter National Accounts, federal government consumption of expenditure (that’s current or locked-in spending) was 11.2% of Gross Domestic Product (GDP) -- which in other words represented $75.8b of expenditure for the first three months of this year, rapidly heading then for close to a billion dollars a day.
But for the 45 years before 2017, government recurrent spending averaged only 7.5% of GDP.
This was a so-called golden age of Australia’s prosperity, but now we have a government pressuring us with a higher (and possibly soon to an even greater tax burden subtly inflicted) making it more difficult for businesses and other organisations to find staff.
Budgetary blowout has occurred during the pandemic behind a smokescreen of the government’s whatever-it-takes-to-survive attitude, and most recently by spending of income derived from taxpayers’ bracket creep.
Leading economists, among them columnist and economic advisor Warren Hogan, make what appears to Macks Advisory an unassailable point when they argue the last thing an economy like ours needs when suffering from a collapse in productivity, is higher taxes.
For these will discourage investment and workforce participation in the economy and will put a dampener on ambition and entrepreneurship.
Cost to the community
It’s not Macks Advisory’s role to question the Albanese government’s ambition and objectives in its rocketing current spending. What’s concerning us -- and we suspect, millions of fellow Australians – is the cost of this spending to taxpayers and the economy.
Economists are saying cost shouldn’t be looked at merely in terms of higher taxes (either now or in the future) but also in lost opportunity. Government spending is monopolising scarce resources that could otherwise be used to regenerate productivity growth.
When the board of the Reserve Bank of Australia (RBA) sees how constantly rising government spending is threatening the viability of thousands of businesses because of the cost of running them – this cost being a likely trigger for renewed inflation -- it’s hardly surprising the Bank is reluctant to cut interest rates.
And there’s further apparent menace to the economy from Treasurer Jim Chalmer’s publicly stated support for increasingly aggressive unions in both the private sector and ballooning public service.
The signs of aggression
The Prime Minister has called an August 19-21 Canberra roundtable conference that will include the nation’s biggest private sector employers. The meeting aims to seek consensus on tax, productivity and economic growth reforms.
However, ACTU secretary Sally McManus with the apparent backing of Dr Chalmers, seems intent on undermining this endeavour. She has told the media that “poor management” by employers “is one of the most significant causes of slow productivity growth”, and he has responded by saying: “I think the ACTU should be able to make their views public”.
Sure, but it’s hardly helpful when it’s done as a prelude to the forthcoming meeting, and it’s unsurprising that business leaders have countered by saying a roundtable had to be assembled because the Treasurer clearly had no comprehensive plan for resurrecting the economy.
Furthermore, industry leaders say unions obviously aim to sabotage the conference before it begins and that during the meeting they will not only pursue abolition of the Productivity Commission but will argue, with no off-sets, for continuing use of industrial regulations (IR) laws and regulations that have been crippling businesses.
If this month the Treasurer together with captains of industry and commerce can’t reach a published consensus on a comprehensibly sound, sustainable plan that will grow the nation’s economy – which in the process removes the regulatory morass retarding housing and other developments -- then blame for failure must be universally shared.
To put it another way: if you want to put up with what’s happening to Australia’s economy, that’s on you, for as Thomas Jefferson, third president of the US, a so-called “founding father” and co-author of the Declaration of Independence said: “You elect the government you deserve”.
