25 March 2016
by John Kelly

Beware the revival of Hockey’s 2014 budget

If the Coalition wins a double dissolution election in July and gains a joint sitting of the lower house and the senate, all the elements of that disastrous 2014 budget will be passed into law and inflicted onto the Australian economy.

The 2014 budget, in all its negative splendour, will be passed after all. There will be a Medicare co-payment, the retirement age will be lifted to 70. Families, senior citizens, education, health, universities, the unemployed, low income earners, pensioners and people with disabilities, will all suffer.

Is there anyone left? Yes, the well-off; the top end of town. They will all benefit.

But it gets worse. It means even more money will be withheld from circulation, causing small business, in particular, to feel the impact of less spending in an already nervous economic environment.

Doubtless, such a move would then give treasurer, Scott Morrison the opportunity to introduce reductions in company tax (for the handful that actually pay it) and possibly even personal income tax cuts.

Morrison et al, claim that cuts to company tax (for the handful that actually pay it), will stimulate productive activity thereby creating jobs. Rubbish! Productive activity comes from stimulating demand, not supply.

Personal income tax cuts introduced by way of an increase in the tax threshold for those earning $80,000 or more, would pave the way for more spending by the private sector, but without any guarantee that such money would be spent, or find its way into the broader economy.

It might quite easily be funnelled into superannuation, negative gearing or capital gains, none of which would help an economy currently crawling along at tortoise pace.

But don’t waste your time telling Scott Morrison that. His mind is made up. Company tax cuts and measures to alleviate bracket creep in the higher income brackets are all he can visualise right now. He is that short-sighted.

And so we have a clear choice. It is not so much what Labor will do if they are elected, but what we know the Coalition will do in a joint sitting of parliament, after they have been returned.

Such is the obsession this government has with returning the budget to surplus. A move so foolish, so fiscally unsound, it will drive the economy into recession.

Economics professor Bill Mitchell says:

“Running surpluses (to reduce public debt and reduce the “national interest bill”) does not increase “the capacity” of a currency-issuing government to invest in public infrastructure. Budget surpluses take net spending out of the economy and therefore reduce spending growth.

They are only justified if the external sector is driving growth and the private domestic sector is saving overall at its desired level and there are first-class public services and infrastructure being provided.

In those instances, surpluses might be required to keep the economy within its inflation ceiling. Otherwise, they will reduce growth.”

None of the circumstances that would justify returning to surplus exist at the moment. Our external sector (export trade) is in decline. Our monthly trade deficits are huge by normal circumstances. The private sector has accumulated massive debt and our infrastructure (NBN, fast rail, etc.), is, by world standards, second rate, or non-existent.

Treasurer Scott Morrison is out of his depth. Malcolm Turnbull is a captive of the hard right conservative element in the government. He is being bullied into submission. He is weak.

The message the electorate needs to hear, is that if the Coalition is returned, the majority will suffer economically. That is not an opinion, it is a fact-in-waiting.

A Coalition victory in July and the subsequent revival of the 2014 budget measures will ensure that happens.