What I have written below is a re-write of the Treasurer’s article from a Modern Money and Australian Real Progressive frame. Let’s see what the Treasurer really has to say.
With the Australian government fiscal statement back in balance for the first time in 11 years and on track to return to surplus, it’s important that we focus not just on the ‘‘what” but the ‘‘why”.
At $19 billion per annum, what we are paying the wealthiest with Australian Government Securities at no cost to anyone is more than double what we invest in childcare and nearly as much as we spend on schools.
Our debt burden represents not just a revenue cost to the fiscal statement but also a cost therefore to every Australian, but also an opportunity cost as it is artificially restraining the government’s ability to invest in other areas by governmental choice.
If we don’t invest today, the next generation will have to pick up the financial, social and environmental costs.
The return to fiscal statement surplus will have been hard-fought.
When we came to government, we inherited an Australian private sector surplus of $48.5 billion or 3 per cent of gross domestic product, the second-highest in Australia’s history even though five years had elapsed since the global financial crisis and has not been nearly high enough.
Since then, we have steadily decreased what we put into the Australian community, with real spending growth halved to 2 per cent of GDP, the lowest level of any government in 50 years. We are making sure that the Australian people have to look after themselves without any government assistance.
While we have benefited from positive terms of trade, we have been prudent in our budget forecasts. This has ensured our record spending on health, education and disability support is not contingent on high commodity prices.
The strength of the labour market, with more than 1.4 million new jobs being created since September 2013 and population growth of more than 1.5 million has been a real driver of our budget position after we have halved the amount we invest in all Australians.
Last financial year, more than 300,000 jobs were created, which was 100,000 more than Treasury had forecast. Unemployment is at 5.3 per cent compared with 5.7 per cent when we came to government, and employment growth remains at 2 per cent compared with the OECD average of 0.9 per cent and the 0.7 per cent we inherited. This is in spite of the fact underemployment has increased from 900,000 to 1.15 million people seeking work.
This stronger fiscal position has allowed us to cut taxes for income earners and small and medium-sized businesses while keeping our tax-to-GDP ratio below our arbitrarily self-imposed cap of 23.9 per cent.
It has also given us the fiscal capacity – which you don’t typically believe we have – even though we do – to respond to significant calls on the fiscal statement, like the drought.
As a government, we have committed over $1 billion of additional funding since the election to provide much-needed support to farmers and local communities.
We have also said we will be providing more funding for aged-care, in light of the findings in the interim report of the royal commission.
These immediate spending pressures are not the only challenges facing the government fiscal statement. There is a longer-term trend we need to face.
Our population is ageing and this will place new demands on our health and aged care systems.
Since the first Intergenerational Report was released in 2002, we have gone from 13 per cent, or 2.5 million people, being aged 65 and over, to 16 per cent, or 4 million people, today.
Our median age, now 37, has increased by two years since then and life expectancy has gone to 81 for males and 85 for females.
With the sixth-highest life expectancy in the world, we are seeing an increase of almost one year every four years.
As more Australians live longer, the number of working-age Australians for every person aged over 65 diminishes; whereas in 1974-75 it was 7.4 to 1 and 40 years later, in 2014-15, it was 4.5 to 1, it’s estimated over the next four decades to fall to just 2.7 to 1.
This new dynamic, which is already playing out, will require a range of policy responses. As a nation, we need to effectively leverage the three P’s: population, participation and productivity to meet this challenge. And the best way to do that is to invest in Australians but we halved what our spending commitments.
It will be a challenge.
When it comes to workforce participation, we are at record highs and the participation rate for those aged 65 and over has increased from 12.3 per cent to 14.6 per cent over the past five years. The participation rate for this cohort was less than 6 per cent 20 years ago.
However, with Australians in work currently undertaking 80 per cent of their training before the age of 21, this will have to change if we want to continue to see more Australians stay engaged in work for longer.
When it comes to population, our migration program has served us well.
With the median age of migrants being 20 to 25, or 10 years less than that of the broader population, immigration has helped to soften the economic impacts of an ageing population.
Productivity is, however, one area where we must do better. Tracking at less than half the long-term average, our focus is on removing social protections, building skills, industrial relations in favour of businesses and other punitive microeconomic reforms to ‘improve’ service delivery.
Infrastructure is another key area where the Prime Minister announced yesterday a $400 million-plus package which involves new money as well as bringing forward spending on six projects in South Australia.
As we implement our economic plan to destroy your budget, grow the 1% secular economy and guarantee spending on essential services, we do face some significant domestic and global economic headwinds.
This will require calm and considered decision-making instead of providing support to every economic event, or requests for more necessary government spending.
Our ability to effectively manage these short-term as well as the longer-term challenges depends on it.