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Holding the budget to account

14 May 2021

While the government’s increased spending across the economy is welcome, the budget falls short of the government’s long term resilience and sustainability goals, Miranda Stewart writes.

In a way, it is surprising that an annual budget continues to exist in an era of continual data collection, accrual accounting, and daily political announceables. The annual budget remains the only place where a government presents its current taxing and spending record so that citizens can call it to account and compare it with the political narrative that always comes alongside it.

Treasurer Josh Frydenberg understands the political function of the budget – pitching that ‘Team Australia’ is bouncing back, as the country looks to recover from the COVID-19 pandemic, possibly foreshadowing future election messaging.

But what does ‘Team Australia’ look like in this budget, and is the government’s vision for Australia in the future sustainable?

First, the budget fails to position Australia to engage fully in the global digital economy despite some digital policies. Borders are still closed and the budget does not contain many policies to achieve re-opening safely.

Australians should be pleased that Australia’s COVID-19 policy has kept people alive, but it is still disappointing the population will not be fully vaccinated this year. Instead, this is only ‘likely’ by the end of 2021.

There is no funding for federal quarantine centres, although the virus continues to wreak havoc in countries that are major trading, educational, and tourism markets for Australia. The assumption of re-opening by mid-2022, delayed already by one year, seems too ambitious in this risky context.

Second, this claims to be a women’s budget, but falls short of being a true gender reset.

There has been a lot of coverage of whether this budget will deliver benefits to women and deservedly so, after the strong criticism of how macho the October 2020 COVID-19 budget was, and the government’s clumsy response to sexual violence and harassment in Parliament earlier this year.

The government has responded to calls for an expanded childcare policy by removing the annual cap per child at childcare, and subsidising 95 per cent of the fee – but only for families with two or more children under five.

Public investment in childcare matters for Australia’s economy and fiscal sustainability, but this childcare spend remains far from the universal provision that is needed to enable women to achieve their full economic potential.

To its credit, the government has also reinstated the Women’s Budget Statement, removed under Tony Abbott in 2014. This could support a longer-term agenda, but it needs work.

The Women’s Budget Statement contains important data about the different economic, social, work and family situation of women and men but less analysis or explicit connections to budget taxing and spending policies. Most importantly, it is missing clear goals, indicators, and targets for gender equality.

Despite its flaws, it does show what the budget could look like. A more nuanced analysis with a gender lens should shape future budget policy for women and men, young and old.

Thirdly, despite the budget emphasis on economic resilience and stimulus through ‘targeted and temporary’ spending, fiscal sustainability remains elusive.

Fiscal recovery depends mostly on a rapid and sustained economic recovery, but assumptions about borders, migration and productivity are ambitious.

If interest rates stay low, Australia’s net debt will be manageable in the short term, but tax revenues needed for a sustainable long term fiscal position are lacking and nothing in the budget supports federal or state tax reform in the longer term.

The glaring lack of a national mining tax means we are missing out on revenue in an era of iron ore super-profits and makes it harder to reform the corporate tax. The budget does not contain a clear business tax policy, and instead extends ‘temporary’ measures to stimulate investment, which are estimated to cost more than $20 billion over the next three years.

Digital policies point to the reality of global tax competition forcing tax rates on intellectual property and mobile innovation down, as the budget provides additional deductions for digital investment and a ‘patent box’ with a 17 per cent tax rate for biomedical inventions patented in Australia.

For individuals, a ‘new’ tax cut for low and middle income families costing $7 billion over the next year is just a one-year extension of the low and middle income earner tax offset (LMITO) scheduled to end last year.

The straitjacket of the already legislated stage three tax cuts, and the possible extension of the LMITO, means that tax reform is a very difficult challenge – as there will be less to give away in future.

Finally, climate change is the biggest ideological sticking point for this Coalition government. It continues to rely on ‘technology not taxes’ to ‘hopefully’ achieve 2050 emissions reduction goals, while promoting a ‘gas-fired recovery’.

There is no clear industry policy to support renewable energy, electric vehicles, or structural adjustment for regions still fundamentally reliant on fossil fuels.

In this economic recovery budget, the government has initiated structural change in social expenditures including the National Disability Insurance Scheme, aged care and childcare, but the budget fails to achieve the resilience and sustainability reset the country needs as we navigate our way out of the COVID-19 crisis.

This piece was co-published with Austaxpolicy, the blog of the Tax and Transfer Policy Institute at ANU Crawford School of Public Policy.

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Updated:  28 October 2021/Responsible Officer:  Crawford Engagement/Page Contact:  CAP Web Team