Economic Outlook

Unpacking the Federal Budget

Every organisation you can think of has sent Tony Abbott its ‘budget submission’, its statement of why it believes its specific sector deserves better. Meanwhile, he has totted up the columns on the balance sheet and found out the hard truth: there is not enough in the pot to go round.

As ever, hard choices have had to be made; as the Prime Minister said, just before parliament shut down for its holidays, “we will deal with Labor’s legacy of $123 billion in deficits and $667 billion in debt – because countries need to live within their means as households do”.

So does Australia face austerity and belt-tightening? The answer is both yes and no. One of the more cogent pre-budget submissions came from the Business Council of Australia (BCA), a group of powerful CEOs of household-name companies who “generate national wealth, create jobs and ensure Australia keeps up with rapid, ongoing change,” as the BCA puts it.

They see opportunity rather than problem, which itself seems good news. “This year’s federal budget has the opportunity to set Australia up for sustained economic growth if it puts the fiscal strategy back on track,” BCA Chief Executive Jennifer Westacott said in February. “Improved budget discipline is not counter to economic growth. It is critical to our capacity to weather economic shocks and invest in the infrastructure, education, health and social safety net we all want for the future.”

The BCA calls for long-term policies in an increasingly short-term world, though. It wants a ten-year, three-pillar strategy to repair the budget and grow the economy, correcting expenditure, strengthening the revenue base and reforming the economic structure. “It’s time to stop the budget strategy from being used as a political football and for the Australian Parliament to agree on the need for fiscal discipline and policies to support growth,” said Ms Westacott. All well and good – but don’t all governments play footy with budgets and policies?

Certainly, Prime Minister Abbott is in the position of a tough-tackling fullback (soccer) or hard-hitting flanker (rugby). Check his game in terms of the alleged ‘Bonfire of Red Tape’, the federal government’s red tape repeal day aimed at abolishing more than 9,000 regulations, which it says are redundant. Check his work at the breakdown in the area of the mining tax, or repeal of the carbon tax. However, depending on who you believe, these high-profile campaigns are not really saving us much. The revenue generated by the mining tax has been tiny; the red tape savings are not as advertised and as for the carbon tax, who knows? There simply is no neutral viewpoint.

Like any previous administration, this one is assailed by the stubbornly strong dollar, persistent wage inflation linked to the need for a better deal for those on the minimum wage, external pressures, and dire predictions of capital expenditure cutbacks (twenty-five per cent in the case of mining). Actual (estimated) investment in the manufacturing sector is nineteen per cent lower for 2014-15 than what was first expected for 2013-14. One recent forecast was for manufacturing investment to hit a twenty-five year low in the coming fiscal year. In development terms, the near future looks bleak.

So Treasurer Hockey’s outline deal to ‘recycle’ lots of state-owned assets, selling them off and using the proceeds to fund much-needed infrastructure projects, came as welcome good news. “We need to fill an infrastructure hole in the economy and we need to do it fast,” he said at the end of March. The government will provide a payment worth fifteen per cent of the asset if the state agrees to sell it off and invest the funds in new “productive infrastructure”. The definition of “productive infrastructure”, and the amounts available, will be detailed in the budget itself.

Individual states will need to demonstrate that any proposed reinvestment would provide economic benefits before Canberra agrees to hand over the cash. “This is a blank sheet of paper for a project proposal, but obviously there needs to be a net benefit to the economy, it needs to be result in more jobs and it needs to be a good use of money,” said Treasurer Hockey. There will, hopefully, be safeguards against exploitation of public utilities such as those that took place in the UK – the carve-up among the powerful elite of railways, electricity and gas – and the treasurer must be crossing his fingers that enough private consortia exist within Australia to buy assets without them falling into foreign ownership (the fate that still could befall benighted Qantas).

But “productive infrastructure” has a nice ring of jobs, sales and general injecting of stimulus into local and regional economies. More work in the construction industry means more people in the high street, the supermarket and the travel agent. More bypasses and sensible rail links (subject to environmental considerations) means enhanced quality of life. Always assuming your property is not in the line of the new rail track – or the flight path for the new Sydney airport, for example.

In two other sectors, it is clear that investment and new projects will not be an option but a necessity: education and ageing. Government enrolment projections prepared by the Commonwealth Department of Education indicate that some 1,500 new schools will be needed by 2020. These schools will require capital funding and a significant proportion of them will be in the non-government sector.

According to Aged and Community Services Australia (ACSA), there are currently about 183,000 aged care beds and about one million elderly people who use community care services in Australia. “By 2020 we will need 82,000 new aged care beds and over 1.4 million will be utilising community care so the service system will need to gear up to accommodate this growth,” says the organisation. “To put this in context, to meet the demand for aged care beds there will need to be 2.25 new 100-bed residential aged care facilities opened each and every week over the next seven years.” ACSA reminds us: “There will be fewer people paying taxes to fund aged care, and less people in the working population to provide the care and support services required.”

According to Ms Westacott, “fiscal discipline was bigger on promise than delivery. It’s clear over recent years we have lost control of the fiscal strategy. Clearly, the size of the challenge and weaknesses in the economy mean the budget can’t be fixed in one year. What we have to see urgently is a credible plan for returning the budget to a decent surplus over a decade, with action that starts now.” We can no longer afford for politicking to obscure the considerable pressures on the budget, she adds, or the need for a comprehensive approach to deliver long-term growth. “If politicking ends up kicking the can down the road on dealing with our significant economic challenges, future governments will inevitably be forced to take more drastic actions.”

Remember that amazing statistic last summer about far-off Norway: every Norwegian is effectively a dollar millionaire because of the spending surplus of its prudent and conservative (small-C) government? Once sneered at because of its alleged “high-taxation” nanny-state style of society, Norway owes its unprecedented prosperity to its oil and gas reserves and its careful exploitation of them. It’s a country with twenty-two per cent bigger GDP per capita than equally resource-rich Australia, which is also conveniently twenty-two times larger in land area. Norway, with its low-impact consensus politics, has no problems providing social services such as education and aged care; so why does Australia? Could it be possible that a sensible, long-term and less partisan approach might, against all the odds, finally emerge and flourish? We can only hope so!

Making Sense of Management

Management is the art, or science, of getting things done through people. Sounds fairly straightforward – except for the fact that people are not robots waiting to do our bidding. People have their own minds, motivations, and goals. So how do managers keep operations – and the people behind them – running as planned?

December 19, 2018, 5:32 PM AEDT