Editorial: budget 2006

Once upon a time fairy tales didn’t end with the words ‘“they all lived happily ever after”’. Before Walt Disney took to them with a pastel brush, the heroes of ‘rags to riches’ stories found riches only to lose them again, and watched their friends fade away with their fortunes.

“Now he was rich, had fine clothes, and many friends, who all declared he was a fine fellow and a real gentleman…But his money would not last forever; and as he spent and gave away a great deal daily, he found himself at last with only two shillings left. So he was obliged to leave his elegant rooms, and live in a little garret under the roof. None of his friends came to see him, there were too many stairs to mount up.”

The Tinder Box, Hans Christian Anderson

Thanks to Bill Leak

There’s a reason Costello was caught smiling a few days before the Budget was released. May 9th is about as close as it gets to a fun night in at the Treasury, and this year he really had something to smile about. As long as the revenue from the resources boom keeps flowing, it’s a party at the Treasurer’s house and all the Government’s friends are invited. There’s a lot for the A-list, a little for the B-list, and some generous handfuls of change to be scattered amongst the crowds waiting outside.

But the problem with booms — especially booms based on non-renewable resources and debt-financed consumption – is that they don’t last forever. No one ever lost an election for cutting taxes — even when the cuts are clearly biased towards the wealthy — but Australians are smart enough to realise that frittering away a one-off windfall in a spendthrift budget is a bad idea. We may be happy jingling our extra pocket money now, but Costello should read his fairy tales — money buys false friends.

Taxes are an investment in our future, and tax cuts are only justifiable when that future is secure.

In this edition Steve Keen‘s article demonstrates that this is far from the case. In The Platypus Economy? Unravelling Australia’s Economic Paradoxes he asks how we can reconcile deflationary government policy with a booming economy, and stellar export prices with a record current account deficit. Is there something truly new about the economy, or are we being deceived? The answer, unfortunately, is deception: the hidden trick that glues the economy together is debt. Behind the appearance of fiscal austerity on the one hand, and a miracle economy on the other, has been a dangerous addiction to credit. Australians have borrowed their way to an apparent but illusory prosperity.

Our Treasurer, writes Ian McAuley (A Budget for the Lucky Country), is like Oscar Wilde’s cynic “who knows the price of everything but the value of nothing”. A run of good luck has masked serious weaknesses in the Australian economy. Sound financial management is not enough to compensate for years of underinvestment — to ensure our future prosperity we need economic policies to build our infrastructure, skills and resilience.

Frank Stilwell (The 2006 Federal Budget – a sober assessment), writes that the 2006 federal budget fails to address the social imbalance between ‘private wealth and public squalor’. Together with its contradictory macroeconomic effects, this makes the budget an exercise in political opportunism rather than social responsibility.

Ben Spies-Butcher and Tom Keily (Using the resources boom to fund the future) look overseas for some direction about alternative ways to use this one-off revenue to achieve real ‘reform’ and properly ‘future proof’ Australia. The ‘Alaska Permanent Fund’ and the Norwegian State Petroleum Fund provide examples.

John Quiggin (Beer, Cigs, Same — Budget loses the limelight) writes that budgets used to be the central focus of debate over macroeconomic policy and the likely outlook for unemployment and inflation. This is now done by monetary policy, which has killed off public debate about macroeconomic issues. If things should go badly wrong, the policy debate will need to be restarted from scratch.

While the budget is large on promise, says Robyn Vines (Mental health and the budget) it is slim on detail about increased funding to mental health care — an area deemed by many, including the Prime Minister, to be in need of radical reform. However, there are some important positive developments including increased support for general practitioners – the front-line providers of most primary mental health care services — and the first ever allocation of Medicare rebates to clinical psychologists.

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