In every budget since the 2008 global financial crisis the former federal government told us revenue would rebound and, combined with “fiscal discipline”, a return to surplus was in sight.
The problem is revenue didn’t return to the levels projected, government spending grew, and the fiscal discipline was bigger on promise than delivery. For example, the former government promised to keep spending growth below 2 per cent but it actually averaged over 4 per cent in their time.
It might not sound much at first, but in the space of five years these wishing and hoping budgets have left the new government with a headache: net debt of almost $200 billion and a budget deficit of $47 billion this year.
What does this mean for all of us?
If we think about this in terms of the household budget, it’s the difference between having savings in the bank and no credit card debt to being in a position where you are living week to week and covering expenses on the credit card. You might be able to do it for a while, but eventually the car will break down or some other big bill will come in and you have no way of covering it.
The government might have a much bigger credit card limit than households, but like any household budget we should be worried the problem has become worse in recent years when there are some big bills on the horizon, such as the National Disability Insurance Scheme.
This is a situation every Australian should be concerned about. We have a weakened national budget at the same time as our economy is adjusting to the mining boom slowdown, rising health and ageing costs, and competitiveness challenges leading to painful decisions such as those taken by Toyota, Holden and Ford.
With money tight at the same time as the economy is looking weak, some are questioning whether a tough budget will put the economy at risk.
But what we should be asking is what are the risks to long-term economic growth if we don’t have a strong budget position.
The federal government’s Commission of Audit – which is now handing down its initial report – is a once-in-a-generation opportunity for Australia to avoid the mistakes of countries in Europe by identifying how government can spend money more wisely and save for the future.
The government must draw from the Commission of Audit and get on with the task in this May’s Budget. A good place to start would be reducing the waste in spending by cutting back on the explosion of government bodies and agencies, which had reached 932 at last count.
The government also needs to use the audit to make a start on sorting out who does what in the federation, so where possible we can avoid Commonwealth and state bureaucracies providing services in the same area.
Government can operate faster and smarter, including through greater use of technology, better targeting of welfare, outsourcing and privatising government businesses where it makes sense, provided it has a plan.
What we also need is bold policy to help business invest, innovate and create jobs to get the economy back into high gear. That includes changes to ensure our workplace laws support productivity and competitiveness rather than conflict and inefficiency, a more competitive tax system, less red tape dragging down business, and better roads, ports and railways.
Paying off the credit card, making sure we spend less than we earn, spending wisely and saving for a rainy day should not be seen as a pipe dream – it should be seen as the only real choice if we want better lifestyles and more choices for our children into the future.