After innumerable pre-budget “leaks”, the surprise up Josh Frydenberg’s sleeve was $29 billion in tax cuts for low and middle-income earners – doubtless a win for those who’d like to keep more of their money, but hardly the sweeping reforms required to make Australia’s economy more dynamic and less reliant on the exports that Paul Keating referred to in his infamous “banana republic” comments in 1986.
The rationale here (as it was in October) is that this budget was necessary to ensure the recovery and return of the economy to its pre-COVID state. As even the most disinterested observer of the pre-COVID economy would attest, that is not a desirable outcome – nor one that will necessarily be achieved by the budget. Stimulus measures and closed borders have already seen Australia mostly return to where it was. The mission now is to get it to where it should be.
Treasury’s own papers attest to the fact that wage growth will remain subdued for years to come. GDP growth will increase spectacularly in the short-term, before returning to the sluggish state it was in pre-2020. The “election Budget” offered plenty of cash for noble causes too long ignored by the Morrison government, but plans to turn Australia into the next Hong Kong are more or less stillborn despite new tax incentives designed to attract foreign investment. Renewable energy policy and infrastructure commanded little attention. And true industrial relations reform is still the LNP’s Gordian knot.
The Blueprint Institute, a recently established economic think tank, predicts that this decade “could go one of two ways”: marred by political instability and a stagnant economy, or something more like the boom time of the 1920s – “a decade of economic prosperity with a distinct cultural edge”, fuelled by policy-driven innovation, research and development. On budget night, Mr Frydenberg set off down the wrong path.
