The projected deficit is $161 billion for 2021-22, but rather than tackling this in the next four years, the government’s focus is instead on payments and long-term serviceable debt.
The government is projecting a bump in real GDP growth in the next financial year, before growth settles again over the near future.
Part of the reason the government can afford to keep spending high is the low cost of international debt. This means that while net debt will continue to increase beyond the next four years the budget estimates cover, net interest payments should remain low.
And another major factor in the budget’s performance – despite the big spending – is the impact of a very high iron ore price, in the midst of a global pandemic.
The chart below shows the difference between policy decisions and other factors, generally beyond its control.
With a major focus on business and infrastructure spending to revive the economy, extensions to tax benefits and announced packages for childcare, there are many spending announcements in this year’s budget and very few cuts or savings.
The difference is so great that we have drawn out some of the major spending announcements and included all significant cuts in our headline figures for this year’s budget.
Seventy five years ago, the world faced daunting challenges: the reconstruction of Europe and Japan; the long-overdue end of an empire; the threat of communism; urgent demands for public services, social welfare and housing; and the orientation of economic activity away from the demands of war towards improvements in the quality of life.
In Australia, the Commonwealth published a white paper, Full Employment in Australia, in which it accepted responsibility for ensuring that there would always be enough demand for labour so that everyone who wanted to a job would be able to get one.
In pursuit of this goal, both sides of politics understood that they would usually need to run budget deficits.
For 40 years under prime ministers Chifley, Menzies, Holt, Gorton, McMahon, Whitlam and Fraser that is exactly what happened, as it had for most of the 40 previous years without the guiding light of the white paper.
Governments would spend as much as was needed (some of it in the form of gigantic nation-building projects such as the Snowy Mountains Scheme) and tax as little as was needed in order to keep the unemployment rate at close to zero as practical without putting too much pressure on prices.
If there were deficits, low interest rates and the economic growth that flowed from those deficits would shrink the resulting debt as a proportion of GDP.
Banks were regulated to ensure interest rates stayed low and credit was directed to businesses and households.
Menzies was a Keynesian
These were the golden years of so-called Keynesian economics with a consensus across the political spectrum that it was right to use government spending and tax measures to sustain the economy, disputed only by Marxists on the Left and a small band of neoliberals on the Right.
Up until the mid-1970s, when war in the Middle East, fautrising energy prices in a world dependent on oil and rising union militancy in Australia combined to create double-digit inflation and an unemployment rate far higher than the one or two per cent Australia had enjoyed since the war.
In Australia and elsewhere it allowed a takeover by a new band of neoliberal politicians and economists who believed in small government (sometimes austerity), balanced budgets and outsourcing economic management to central banks who were given the autonomy to adjust interest rates and the supply of money in a deregulated market.
It happened slowly, under the governments of Margaret Thatcher in the United Kingdom, Ronald Reagan in the United States and (Labor prime minister) Bob Hawke in Australia.
Hawke was an exception
By the 1990s, the old consensus had not only disappeared, its successes had been erased from memories. A new academic and institutional consensus emerged, shared by prime ministers Hawke, Keating and Howard and treasurers Keating and Costello.
Although it does not require balanced budgets, the Charter of Budget Honesty introduced by Treasurer Peter Costello requires governments to publish the fiscal strategy they intend to use in drawing up budgets.
It has been honoured in the breach since 2008, because surpluses usually aren’t consistent with good economic management, regardless of charters.
If the private sector is a net saver, as it usually is, the public sector usually needs to be a net spender in order to keep resources fully employed.
In last year’s election Prime Minister Scott Morrison and his opponent Bill Shorten disagreed about many things, but the need for surpluses wasn’t one of them
Surpluses no longer
No longer. In the leadup to tomorrow’s budget Treasurer Josh Frydenberg has promised a new fiscal strategy, one that for the first time is likely to promise neither a surplus or a balanced budget.
“It would now be damaging to the economy and unrealistic to target surpluses over the forward estimates, he said in September. “This would risk undermining the economic recovery we need to bring hundreds of thousands more Australians back to work and to underpin a stronger medium-term fiscal position”.
Proponents of the neoliberal consensus would argue that the decade of surpluses between the late 1990s and the global financial crisis was a golden time. It was certainly helped by the mining boom.
But inequality grew, household debt trebled, and as the government continued to target a surplus, interest rates had to be cut to the point where further cuts may no longer have an effect.
Inflation has been below the Reserve Bank’s target and unemployment above it for a decade. The budget is about all that’s left to support the economy. It certainly shouldn’t be getting out of the way to allow the private sector to create wealth, as those proponents used to suggest.
We are on the cusp or a second Keynesian revolution, one expression of which is Modern Monetary Theory, which suggests deficits need to be embraced where they are necessary to bring about full employment.
A government such as Australia’s which issues its own currency is able to fund deficits for as long as it needs to, and would be wise to do so up until the point where it creates too much inflation.
Something stronger
With the package comes the idea of a job guarantee, first put forward by the American economist Hyman Minsky in the 1960s, and promoted now by University of Newcastle labour market specialist Bill Mitchell and the founder of the Cape York Institute Noel Pearson.
It is the unconditional offer of a job at a minimum wage to anyone willing and able to work, normally funded by budget deficits and bigger when the economy is weak and smaller when it is strong.
Will it happen? As Stephanie Kelton, the world’s most prominent Modern Monetary Theorist and author of the New York Times bestseller The Deficit Myth said recently, “I won’t say no. But it’s going to be a hell of a fight.
Australia is in for a long and damaging economic slump, unless governments inject substantially more fiscal stimulus.
The July budget update forecast that unemployment would hit 9.25% in coming months.
The Treasury now apparently expects it to remain above 6% for the next half-decade.
That would be a disastrously sluggish recovery – as slow as the recovery after the 1990s recession, now widely seen as a failure of economic management.
It would be a slower recovery in unemployment than Australia experienced after the 1980s recession, and also substantially slower than the US experienced after the global financial crisis, when unemployment took five years to fall from a peak of 10% to 5.7%.
The performance of the United States after the global financial crisis was no one’s idea of a rapid labour market recovery. Yet that’s what we are drifting towards.
Note: The ‘Australia — COVID’ number is based on a forecast 9.25% unemployment rate in late 2020 and a forecast 6% unemployment rate in 2025. Sources: OECD.Stat and Grattan calculations
A recession this long and deep would leave ugly scars.
Recent work by officials at the Treasury found that when youth unemployment goes up by 5 percentage points, the wage that new graduates can expect to receive goes down by 8 percentage points, and they’re less likely to get jobs at all.
The effect on graduates’ wages lasts for years.
Over a decade they lose the equivalent of half a year’s salary compared to otherwise similar young people who graduated in more benign conditions.
Note: The shaded error is a two standard error confidence band. Source: Treasury Working Paper 2020-01
A Productivity Commission staff working paper came to a similar conclusion: economic downturns have big and long-lasting effects, particularly on young people unlucky enough to be entering the job market during and after them.
But the Treasury study finds the worst can be avoided if unemployment falls quickly.
For instance, if unemployment returns to pre-recession levels within three years, the hit to young workers’ wages over the following decade almost halves.
Getting unemployment down quickly will cost money
Faced with this scenario – a long and deep recession with sluggish recovery – governments ought to do everything in their power to stimulate the economy.
The Reserve Bank can and should do more, but by itself it can’t do enough. The Commonwealth government has to step up, spending what is needed.
It acted quickly and commendably to support households and businesses through the acute crisis period. Its actions weren’t perfect, but helped turn what was set to be an unprecedented catastrophe into something more like a conventional terrible recession.
But the spending taps look set to be turned off in the coming months, as the emergency support is withdrawn in accordance with a schedule approved by parliament last week.
The fall off the “fiscal cliff” might be cushioned a bit by the boost from households that have saved more during the shutdowns and households that have withdrawn their super savings, but right now the government looks set to be a drag on growth.
More – much more – government support is going to be needed over the months and years ahead.
In June, the Grattan Institute called for additional fiscal stimulus of about $70-to-$90 billion over the next two years.
Those numbers now look too small.
Based on the updated Reserve Bank forecasts, we now estimate than an extra stimulus of $100-to-$120 billion will be needed.
RBA forecasts are linearly interpolated between six-month increments. Full employment estimate range represents one standard error band around central estimate of 4.5 per cent. Source: RBA (2020) Statement on Monetary Policy August 2020; Ellis, L. (2019), Watching the Invisibles, 2019 FreebairnLecture.
Our calculations suggest that would be enough to cut the unemployment rate by about two percentage points beyond where it would otherwise fall to by the end of 2022.
It would bring unemployment back down to around 5% rather than 7%.
The Morrison government is accelerating and repurposing defence spending in a A$1 billion boost to support about 4,000 jobs and assist small and medium-sized businesses in the defence industry supply chain.
In several workforce initiatives worth about $80 million, up to 210,000 more days will be available to give supplementary employment to Australian Defence Force reservists, some of whom have lost civilian income. There are 27,000 ADF active reservists.
Five hundred more reservists will be recruited, which could help people with part time employment who have lost their primary employment due to businesses closing and the restrictions.
The ADF will slow or delay the transition of personnel out of the force for medical reasons, subject to medical advice. There will also be support for ADF partners to find work.
A $300 million “defence estate” program, supporting up to 2,200 jobs, will speed up work scheduled for defence facilities around the country. Some of the areas to benefit suffered in the bush fires.
The program will take in the RAAF bases East Sale, Pearce, Wagga and Amberley, as well as Jervis Bay and Eden, the Albury Wodonga Military Area, and Blamey Barracks. This builds on an announcement made in May.
About $190 million will be invested in bringing forward seven infrastructure projects in the Northern Territory, involving Robertson Barracks, RAAF Base Darwin, Larrakeyah Defence Precinct, and the Delamere Air Weapons Range.
Another $200 million will be spent on “sustainment of existing capabilities and platforms” including the upgrade of Bushmaster protected mobility vehicles, modernisation of ADF uniforms, and extra C-27J maintenance. The last will provide work for 23 former Qantas engineering and technical workers, and 14 ex-Virgin technical peronnel.
The uniform modernisation will speed up the delivery of “a contemporary, practical Navy uniform”.
Accelerating various projects to develop and deliver capability will cost $200 million and give work in the areas of manufacturing, construction and high tech.
About $110 million will be allocated to defence innovation, industry grants, skilling and micro credentialling and cyber training.
Scott Morrison, who will formally announce the package on Wednesday, said that like other parts of the economy the local defence industry was “doing it tough”.
“Supporting our defence industry is all part of our JobMaker plan – especially high-paying, high-skilled jobs that ensure we are supporting a robust, resilient and internationally competitive defence industry, ” he said.
“We will also support our ADF members and families, particularly any reservists who are doing it tough because of COVID-19.”
Federal health minister Greg Hunt has unveiled a A$48.1 million COVID-19 mental health plan, featuring A$7.3 million for research and data collection, A$29.5 million for outreach to vulnerable people, and A$11.3 million for communication and other outreach programs.
This is on top of the A$1.1 billion Medicare package to tackle mental health and domestic violence, announced in March, which included funding for telehealth mental health services by GPs and mental health practitioners.
Is the funding needed?
Mental health experts have warned of a “second curve” of mental ill-health in the wake of the COVID-19 epidemic. This will result from widespread anxiety and depression, both about the disease itself and the knock-on social and economic effects of the lockdown.
Modelling has predicted that suicides could increase by 25-50% per year for up to five years, if urgent action is not taken.
It is hard to rely on any prediction with confidence, given this situation is unprecedented. Recent research from the Australian Bureau of Statistics indicates that the mental health effects of the pandemic are not dramatic so far. The graph below shows data from a national survey of symptoms carried out in April 2020, compared with earlier national survey data collected in 2017-18.
Author provided
There has been a significant increase in feeling “restless or fidgety” and a trend towards more people feeling “nervous”. This probably reflects the confinement of the lockdown and anxiety about infection. Increases in anxiety are not necessarily a bad thing, as they motivate people to protect themselves against infection. Fortunately, the more serious symptoms of depression did not increase; in fact, there has been a signficant decrease in the number of people who report feeling “depressed”.
Yet it has long been recognised that suicides can decrease during times of war if there is a greater sense of purpose and social cohesion. Whether our national response to the COVID-19 pandemic will also produce these protective effects is unclear, but the potential is there and should be encouraged.
While the early effects on mental ill-health have not been dire, it is very early days, and the predicted adverse consequences of the pandemic and lockdown may yet be seen. Given the uncertainties, the government’s planned investment in gathering better data seems wise.
Will it make a difference?
The biggest slice of the government’s new and previous funding packages will go towards extra Medicare services. But although this seems an obvious response, past experience indicates it is unlikely to have a major impact.
What seems more likely to have a beneficial effect is the funding put into the JobKeeper and JobSeeker schemes. The evidence is clear that mental ill-health is associated with job loss and low income. These schemes are keeping people in employment and providing incomes, which means they are directly tackling key risk factors for mental ill-health.
If this preventive benefit is to be maintained, it will be necessary to extend these schemes beyond the planned six months. Now that would be a real investment in the nation’s mental health.
New Zealand’s military aircraft are used for disaster relief, such as following a series of earthquakes in Sulawesi in 2018. EPA/Holti Simanjuntak, CC BY-ND
In most countries, the question of whether to produce guns or butter is a metaphor for whether a country should put its efforts into defence or well-being. In New Zealand, this debate is much more literal and has been won easily by butter.
Relative geostrategic isolation means New Zealand’s security has been more about ensuring global trade routes stay open for exports, like butter. But climate change is now challenging that notion as environmental change is expected to generate instability in the South Pacific.
Big ticket items such as warships and military aircraft last for decades and purchases are often years in the planning. Platforms purchased for the New Zealand military, including some acquired during the Vietnam War, are now reaching the end of their life.
New Zealand is facing significant bills as major aircraft, ships and army vehicles will need to be purchased in the next few years. The timing is particularly awkward for the government as it is shifting its spending towards well-being.
The first purchase to come consists of new C-130J-30 Super Hercules transport planes. They will replace the Royal New Zealand Air Force’s existing C-130s which are now more than 50 years old. At the time of writing, all five of these planes have been grounded due to maintenance problems. A major justification for the upgrades is greater need for a variety of relief, monitoring and peacekeeping missions caused by the effects of climate change.
A recent New Zealand Defence Force report warned that extreme weather patterns will threaten water, food and energy security in the region and shortages could spark violence. New Zealand’s military provides humanitarian aid and disaster relief in the Pacific and the climate crisis is shifting the rationale for defence spending and the politics of defence in general.
Criticism from the opposition National Party has been less about the plan and more about whether it fits with the government’s overall well-being approach. But the real flak has come from the coalition government’s Green Party support partner.
This shows the complexity of defence politics in New Zealand, as different political parties represent distinct strands of public opinion on the role of the military.
Balancing pacifist and martial traditions
The last 50 years have seen significant disagreement over how the country should engage with the rest of the world and what it should do with its military in particular. Decisions over big purchases and overseas deployments can open up major divisions over New Zealand’s strategic identity.
New Zealand’s strong martial and pacifist traditions are both represented in the current government and major defence decisions have to be made with care.
Jacinda Ardern’s coalition is managing this complex balancing act. The coalition is made up of the centre-left Labour Party and the moderately populist New Zealand First Party, with the Green Party providing confidence and supply.
NZ First is the strongest supporter of the country’s martial traditions. It has always had a hawkish attitude towards China, which has become more relevant in recent years.
While Labour is generally seen as more dovish than the National Party, the differences have been largely over tone rather than substance. Attitudes towards anti-nuclear policies, the scrapping of the RNZAF fighter wing, and the 2003 invasion of Iraq have been major points of difference in the past.
Labour has generally differentiated itself by being slightly more willing to criticise allies and placing more faith in collective security, the United Nations and disarmament.
To limit criticism that it is spending on “tanks not teachers”, Ardern’s coalition has skilfully outsourced the job of replacing ageing defence equipment to NZ First’s minister of defence Ron Mark. It was probably no coincidence that last year’s announcement that NZ$2.3 billion would be spent on new maritime patrol aircraft was made by NZ First leader Winston Peters while Ardern was on maternity leave.
Ardern has let NZ First claim the political credit and take the political risk with expensive defence replacements, lest they take the shine off Labour’s focus on social policies. That balancing was on show again last week when Ardern announced that New Zealand was ending its military training deployment to Iraq.
Pacifism in the age of climate change
By sitting outside cabinet, the Greens are able to represent the pacifist end of the political spectrum. The party has its roots in the Values Party of the 1970s, which helped make anti-nuclear attitudes mainstream in New Zealand and, by 1984, Labour Party policy.
The party’s defence spokesperson Golriz Ghahraman described the transport plane purchase as “war making capability” when New Zealand is good at humanitarian aid delivery, monitoring and supporting Antarctic research. She reconfirmed the Green Party’s commitment to peacekeeping through the UN.
This attitude is problematic as it forgets that the tools for war fighting are the same as those for peacekeeping and disaster relief. As the focus of Green movements worldwide has shifted to climate change, the commitment to disarmament is becoming more at odds with the realities of climate change. Rising sea levels, crop failures and mass migration will be massively destabilising to the international system.
It is not tenable to criticise the purchase of aircraft that will be largely used to send relief missions to the Pacific, scientists to Antarctica and peacekeepers to UN missions, simply because they could be used to send soldiers into combat. The challenge for the Greens will be to find a coherent message on the military that tackles the climate crisis and represents the views of its pacifist base.
The challenge for New Zealand’s allies will be to understand and respect how these contradictory threads of New Zealand’s strategic culture direct and constrain its defence spending.
Two months ago, the Australian minister for international development and the Pacific, Concetta Fierravanti-Wells, argued that “80% of Australians do not support any further spending on foreign aid”.
This was reflected in the 2017 Lowy Institute Poll where, when the Australian respondents were told exactly how much Australia invested in aid, $3.8 billion, only 22% supported an increase.
But dollar amounts can be misleading, so the 2018 Lowy Institute Poll took a different approach to the question of public support for Australian aid. Instead of asking Australians whether our current aid investment was right, we asked how much they thought we invested. The results, which back up other research into public opinions on foreign aid, are in striking contrast to reality, revealing how fraught polling of public perceptions on foreign aid can be.
Our 2018 results show that Australians have a highly inflated perception of the size of our aid program. The average Australian believes we invest about 14% of the federal budget on foreign aid and that we should actually invest about 10%. In reality, we invest 0.8%.
On average, Australians think we invest 17.5 times more than we actually do, and would like us to be 12.5 times more generous than we are. Only 6% of respondents guessed anywhere close to the actual number. If that’s how much they think we invest, it’s no wonder there is little support to increase it.
When told how much we actually invest, be it $5 billion (1.2% of federal expenditure) in 2015 or, after significant cuts, $3.8 billion (0.8% of federal expenditure) in 2017, the results are remarkably sticky. The majority thought it sounded reasonable, and only 21% in 2015 and 22% in 2017 supported an increase. When given no baseline, they think we invest more than we do, and think it should be less.
How do we reconcile these results, which appear completely at odds with one another?
To me, this shows how little Australians think about foreign aid. We think of ourselves as a generous nation and expect that to be reflected in our aid program. We don’t give any real thought to it, and in the end trust the government to do what’s right.
But the government is not doing what is right. Since the Coalition government came to power in 2013, Australian aid has been cut by close to 25% when adjusting for inflation.
Australian aid is now at its lowest point in our history, when measured as a proportion of national income. As peers like the United Kingdom and New Zealand are rapidly stepping up, we are slipping into the bottom third of rich country donors.
We are the fifth-most-prosperous country in the OECD but rank 21st in generosity. By 2021, our donor peers down the bottom will be Spain, the United States, Portugal, Slovenia, Greece, Korea, Czech Republic, Poland, Slovak Republic and Hungary.
For me, the answer is that the Abbott and Turnbull Coalition governments do not see the efficacy and importance of aid. They don’t see the critical national interest of our aid program in building goodwill and strong institutional linkages with our immediate neighbours, or the impact it has on improving people’s lives.
They know it will only ever be a marginal election issue, and what few votes there are for it tend to sit on the other side of the aisle. If MPs don’t believe in its importance and don’t see any election implications or widespread public outcry at the cuts, it starts to make sense why the aid program has been such an easy target for this government.
Fierravanti-Wells instead argues forcefully that it is impossible to increase the aid budget when the public does not support it.
Academic literature points to this being a critical flaw of foreign aid. Normal feedback mechanisms of domestic government expenditure that promote effectiveness and support do not apply to foreign aid. Taxpayer money is collected in one country and spent in another, with taxpayers having little knowledge of, or interest in, how it is being spent.
Beneficiaries of aid, on the other hand, have a strong interest in aid, but no direct political influence or voice to advocate for it. These flaws result in a marginal constituency for foreign aid, reflecting its marginal place in government expenditure.
What’s surprising about foreign aid is the public scrutiny it receives from our political class over other investments in Australia’s national interest. Our diplomatic, defence and intelligence expenditure receive less public scrutiny despite far larger (and growing) sums.
The development community has in part allowed this to happen by failing to build and maintain a bipartisan political constituency for Australian aid by selling the importance of foreign aid as a critical investment in Australia’s national interest. It is an important complement to our investments in diplomacy and defence, particularly because we are surrounded by developing nations that have significant financing challenges.
Having just a few political champions can do more than any campaign to deepen public support for Australian aid. Our politicians have the loudest megaphone to support the aid program, but at the moment are choosing not to use it.
There are ways out of this. Aid advocacy efforts could be professionalised and targeted at members of parliament. There should be more study tours for politicians, like those run by Save the Children with the support of the Gates Foundation, to see Australian aid in action in supporting the unprecedented humanitarian and development needs in our region. More effort should be made to highlight the foreign policy and strategic imperative for Australian aid, particularly in response to the growing competition from China, which has finally captured the attention of Australian media in the Pacific.
The Australian aid program is at a disappointing low point, and our poll shows that there is expectation for us to be doing more. It’s time for some political leadership to turn things around.
Jonathan Pryke, Research Fellow and Director of the PNG Network, Melanesia Program, Lowy Institute for International Policy; Centre Associate at the Development Policy Centre, Australian National University
Successive Australian governments are usually judged on how they balance the budget and spend taxpayers’ dollars. The stereotypes are that Liberal governments keep a tight hold on the purse strings, while Labor governments are spendthrifts.
While total government spending has increased from around A$240 billion in 1998-99 to a predicted A$451 billion in the 2016-17 financial year, it’s also accompanied by an increase in revenue from around A$250 billion to A$417 billion over the same period.
But the pressure on the budget under a Turnbull government is more acute now than ever before, because spending is outpacing revenue. It’s now at an estimated 26.6% of GDP in 2016-17, higher than at any point since before the start of the millennium.
When you look at the mix of government spending over the past fifteen years, you start to see some of the drivers of the growth.
To compare spending over time, we have adjusted for the effect of inflation by using real measures.
Social security continues to dominate government spending at A$161.4 billion, constituting around 35% of all government outlays on latest figures. This has fallen from a high of 39% during the Rudd government stimulus package in 2009-10 and is similar to levels at the beginning of the millennium.
In the graph below “other” spending includes the distribution of GST revenues to states and territories as well as spending in areas such as job seekers assistance, industrial relations, vocational training, tourism and immigration. This constitutes the second highest share of government spending, at 18% (A$83.4 billion) of the total spend. General revenue assistance to states and territories accounts for two thirds of spending in this category.
Governments spend almost as much on defence and public safety (around A$32.6 billion) as they do on education (A$34.3 billion), although the states ultimately pick up most of the education bill.
The global financial crisis saw a temporary blip in the mix of general government spending. Social security spending rose by 22% in the year to June 2009, and education expenditure jumped 60% a year later as a result of Rudd’s economic stimulus package.
Government spending on public debt interest has more than tripled in real terms to A$15.4 billion since the start of the global financial crisis, and now accounts for 3.7% of all government spending.
Many of the changes in real government spending between 2008 and 2010 were driven by the impact of the global financial crisis, which resulted in a slowdown in economic growth, rising unemployment and a negative hit on the sharemarket.
The Rudd government response was a stimulus package. The main spending increases came from a combination of accelerating public debt interest, increased payments to assist the unemployed, but mainly the government’s stimulus measures channelled through increased spending on education, housing and cash payments to families.
If a spending measure is truly temporary, a rise in real spending should be followed by an equivalent fall in subsequent years when the spending runs out or the program ends. This is evident to some degree for the social security and welfare and fuel and energy portfolios, but less so in other areas.
For example, the 45% rise in fuel and energy spending in 2008-09 was primarily driven by the introduction of the Energy Efficient Homes package within the Rudd stimulus suite. The scheme ended in February 2010, resulting in a 33% drop in spending.
On the other hand, spending on education rose by A$16 billion as part of the Rudd stimulus package, but remained A$10 billion higher than pre-global financial crisis levels in subsequent years.
Overall government spending has continued to grow since 2010-11, but less dramatically than during the heart of the global financial crisis, by around 8% in real terms over the five years to 2015-16.
The Conversation/Emil Jeyaratnam
Social security and welfare spending constitutes the largest spending commitment of any government budget. It has risen by 70% in real terms over the past fifteen years, from A$91 billion at the turn of the millennium in 1999-00 to A$155 billion in 2015-16.
The biggest welfare spending is for assistance to the aged, families with children and people with a disability. Together, these three items make up almost 85% of all welfare spending.
The 2008-09 Rudd stimulus package had a substantial yet temporary effect on welfare spend, with “bonus” cash payments to families in the 2009 calendar year increasing assistance to families by around A$10 billion. Additional cash payments were also made to students, pensioners and farmers under the stimulus program. And 8.7 million Australian workers earning $100,000 or less also received a cash payment.
Australia’s ageing population and increases in both disability prevalence and disability support are the main driving forces behind welfare spending growth. These factors will continue to exert pressure on future government budgets, especially with the full rollout of the National Disability Insurance Scheme (NDIS).
More than 40% of the government’s 2015-16 health budget of around A$71.2 billion was committed to community health services spending. At A$28.7 billion, spending in this sector has nearly doubled since the start of the millennium and by a quarter since the start of the global financial crisis in 2008-09.
This stems from the need to deliver medical services to a growing – and ageing – population, and the increased prevalence of chronic disease. In this respect, Australia is little different to most countries around the world.
Specific measures contributing to this growth included the expansion of health infrastructure, the costs of enhanced primary care attracting higher Medicare rebates, and indexation of health related payments to states and territories. Pharmaceutical spending increased by 12%, from A$1.4 billion year-on-year to A$12.1 billion in 2015-16.
Education spending rose dramatically during the global financial crisis, with spending on primary and secondary education increasing 81% to A$24.7 billion in the year to 2009-10 as part of the economic stimulus package.
Rudd’s “education revolution” led to a 12% growth in education spending in the 2008-09 budget, quickly followed by a further 61% spending increase in 2009-10 as part of the economic stimulus package. Spending in the following year fell as the temporary stimulus measures came to an end, but overall, education spending has remained significantly higher in real terms than pre-global financial crisis levels.
Spending on the university sector rose to around A$10.9 billion over the same period, but has remained relatively stable since.
Federal government money given to the states and territories
The federal government committed A$60.8 billion in general revenue assistance to states and territories in 2015-16, almost all of which came through the distribution of GST revenue. General revenue assistance spending rose A$3.8 billion in real terms in 2014-15, up 7% on the previous year, but has since stabilised.
Spending on superannuation interest has grown by a quarter since the end of the Howard years, reflecting the increase in the government’s superannuation liability. Lower public sector wages and employment have led to superannuation interest payments stabilising over the last two budgets to around A$9.4 billion in 2015-16.
Immigration spending rose between the Gillard and Abbott governments to a peak of A$4.7 billion in 2013-14, but has since fallen back to around A$3.8billion in 2016 dollars.
Much of the growth in immigration spending occurred during the Rudd and Gillard governments, by an average of 23% annually. This compares to an average of 7% during the previous Howard years. Additional government spending on detention facilities for irregular arrivals was the principal reason for this spending growth.
Natural disaster relief spending spiked between 2009 and 20-11 to assist with the damage and recovery costs from the Black Saturday bushfires in Victoria in 2009, and the 2010 Queensland floods.
Government approaches to supporting various industries has typically been applied on an ad hoc basis. Budget spending on specific industries has risen from A$3.2 to A$5.6 billion in real terms. Agriculture, forestry and fishing typically received a greater share of industry spending during the Howard budgets, reaching a high of A$4.8 billion in Swan’s final 2007-08 budget.
Growth in industry spend slowed during the Rudd years, picking up again with the Gillard and Abbott governments, with a greater preference towards spending in mining, manufacturing and construction projects.
Spending on housing and community amenities has increased from A$2.7 billion to A$7.6 billion, reaching a high of almost A$12 billion in the Rudd years. Spending in this portfolio increased with the Rudd stimulus package, incorporating a number of housing affordability measures including the First Home Buyers Grant Scheme and a boost in investment in social housing.
Spending on sanitation and protection of the environment also expanded rapidly during the Rudd/Gillard government, relative to the Howard years. The establishment of the Climate Change Action fund introduced by Rudd in 2009-10 and the Clean Energy Futures package in 2010-11 have been the main drivers behind this increase. Spending in each has been pared back since the Liberals came to power with Abbott at the helm.
Commonwealth spending on transport and communications projects has more than doubled from A$3.1 to A$7.5 billion over the last 15 years. Spending remained relatively stable under Howard’s government, and then got a further injection on roads in the last two Swan budgets. The Rudd government continued this trend, with Gillard following suit with increases in both road and rail projects.
Spending in this portfolio has been clawed back since the Abbott government, falling from A$9.2 billion to A$7.8 billion between the final Labor government budget (2013-14 financial year) and the first Liberal government budget (2014-15 financial year). The most recent Turnbull/Morrison budget has reaffirmed spending commitments under this portfolio, committing to more than A$11 billion in 2016-17.
The Howard/Costello years were characterised by good economic times, with an extended period of strong revenue growth, yet this prosperity wasn’t matched with any significant spending growth. In fact, overall government spending fell as a share of GDP – from 25.7% in 2000 to 23.6% in 2006-07 – the lowest share since the start of the millennium. And the combination of strong revenue and limited spending commitments under Howard drove down public debt, and public debt interest payments.
We saw some pretty dramatic increases in real spending when Rudd came into power in December 2007. Rudd’s first budget in 2008-09 saw some substantial spending commitments in the area of education but nothing exorbitant.
However, the major turning point in government spending has been driven by the response to the global financial crisis. There were significant spending commitments over the course of the crisis, some of which are still present.
Spending on public debt interest has increased to A$15.4 billion since the global financial crisis – more than the spending on transport and housing combined. And it’s projected to increase further to A$18.7 billion by 2019-20. This just emphasises how high the stakes are for Scott Morrison in delivering a credible budget repair strategy.
The spending of incumbent governments inevitably draw from the commitments of previous administrations, especially for those programs – in infrastructure, education or housing – that involve medium-term funding commitments.
The growth in real spending in areas that directly affect households – social security, NDIS, health or pensions – is an issue that no government can ignore. NDIS costs have been hugely underestimated already, and social security and health spending will inevitably increase with the ageing population.
Set against this context, it’s clear that a piecemeal approach to budget repair is unsustainable. A drop in revenue has ramped up budget pressures, and highlights the compelling need to return to a sustainable spending path and a credible budget repair strategy.
The Turnbull government cannot shy away from making the big decisions that secure a sustainable future for Australia. And the roadmap towards a sustainable future has to include revenue as well as spending as part of the recovery narrative.
The graphs in this article were created by The Conversation’s Multimedia Editor Emil Jerayatnam
Members of a home-based church in the city of Ahvaz are very concerned about their detained member and have reported that after more than a month from his arrest there are no precise information about his condition, reports FCNN.
According to the reports received by the Farsi Christian News Network (FCNN) from the city of Ahvaz, the capital city of the rich petroleum province of Khoozestan in the Southwestern part of Iran, members of a home-based church have informed this news network that more than a month ago one of their members, Neshan Saeedi, has been detained and there are no specific information regarding his condition. This has caused serious worry and concern for the members of the church as well as his family and friends.
The 27 years old Mr. " Neshan Saeedi" , on July 24, 2010 at 9:00 pm, while spending a quiet evening with his wife and young daughter at their home at the Golestan neighborhood of Ahvaz, was attacked by plain-clothes security forces that had entered his house and was arrested.
The security officers searched the home and seized personal belongings such as a computer, CDs containing films of Christian seminars and teachings, Christian books and Bibles, and family photo albums.
Following a rude and intimidating encounter with the security personnel the entire family was then taken to Chaharshir detention center in Ahvaz where after several hours of questioning and harsh interrogation the wife and the 6 years old daughter of Mr. Saeedi were released, but no one has been given permission to contact Mr. Saeedi himself.
The security officers not only insulted the wife of Mr. Saeedi, but indicated that they were apostates and not worthy of raising their 6 years old daughter. They threatened her that if they continue in their Christian activities they may lose their right to her daughter.
They were also accused of threatening the national security of the country and anti-government activities. They were told that they were spies of foreign powers and were leading people to pro-Israel ideology.
The members of the home-based church who fellowshipped with Mr. Saeedi and his wife, out of fear for their lives and the possibility of further arrests and persecution, have since scattered and dismantled the fellowship. It seems that the security agents are desperately seeking two other leaders of this church by the names of Ebi and Omid and are following all leads to pursue and arrest them. Members of this church, who call themselves Unity Church (movahedin) , in their contact with FCNN indicated that not only they are worried about the arrest of their assistant pastor, Neshan Saeedi, but fear further arrests and detentions.
One of the members of the church told FCNN that Mr. Saeedi is one of the older Christians in Ahvaz and he accepted the Lord Jesus as his savior many years ago. During all these years he has been a man of prayer and a worshipper in the house church in Ahvaz. Now, a month after his arrest and detention there has been no permission granted to him to retain a lawyer or contact his family. Moreover, he is under extreme pressure to reveal the names of his church members and to admit his affiliation with foreign powers and his acceptance of financial and other forms of help from them.
The members of the Unity Church (movahedin) not only deny any affiliation and connection to any external organization and foreign powers, but have resorted to exposing this news through FCNN to international media in hope that through prayers and other humanitarian efforts Mr. Saeedi would be released and rejoin his worried and hopeful family.
The Australian aid program is at a disappointing low point, and our poll shows that there is expectation for us to be doing more. It’s time for some political leadership to turn things around.
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