The biggest economic issue facing the country is clearly the out-of-control inflation rate we are experiencing right now. The government’s budget does not put even one ounce of effort into tackling or trying to reduce the rate of inflation in this country. While that is the topic of this motion and it is obviously a statement I have made, you don’t need to spend a lot of time arguing about whether or not the budget is inflationary or deflationary or going to add to the cost-of-living crisis we are facing; you just need to go and have a look at the numbers. You just need to look at the numbers in the budget, because the budget does tell you whether or not the government is increasing spending or decreasing spending. Simply, if it’s increasing government spending, that is going to add to inflationary pressures in the economy because there’ll be more demand for goods and services and not necessarily any more production of goods and services. That is the set definition of how we get inflation. That table is not very well promoted in the government’s budget, obviously. They are not very proud of the results of these facts and figures.
For those listening and playing at home, if you pull up Budget Paper No. 1, available on budget.gov.au, and go to page 94 and table 3.2—it’s the most interesting and probably should be the most discussed table in every budget; you can compare it to different years, which I will come back to—it shows you how much government spending is increasing in net terms due to government decisions. So it’s not because of economic activity or unemployment going up or down or commodity prices affecting the budget. All it does is try to isolate the impacts to the economy of what the government has done this week and over the last few months leading up to the budget. There is a line in table 3.2 which says:
Total policy decisions impact on underlying cash balance.
Now, cash balance is just our overall balance, and a negative number in that line means that things are getting worse, that our cash balance is deteriorating, or, in other words, that government spending in net terms is going up. So that line in that table shows that the government’s impact on spending is deteriorating the budget to the tune of $20.6 billion over the five years of the budget. That is $20.6 billion of extra cash going into the economy.
So let’s forget all the spin. We don’t have to refer—or I might, if I get time, refer—to some economists who have had their say. They might be right or wrong. Different economists will say different things, of course, but the simple facts, in the government’s own figures in its own budget, are that it will be adding $20.6 billion to the Australian economy through its decisions over the past few months and through its budget this week, and that is going to be inflationary. And why is it going to be inflationary? It’s a lot of money, for a start. I think we could all say that it’s a lot of money, but it’s also a significant amount of money in comparison to what has taken place in previous budgets. As I said, this table is a common table in all budgets. All modern budgets have this table identifying what the policy impact of a government’s budget is.
Quite often I’m here late with not much to do. The other night I went through and had a look at this table in every budget for the last 15-odd years, since 2007-08. Putting aside the COVID years, this stimulatory amount is the largest we have seen since the global financial crisis. Obviously, the COVID years were pretty special. In fact, the year of the coronavirus, that figure wasn’t $20.6 billion; it was $233 billion. No doubt that’s one of the reasons we’re in this cost-of-living crisis, but very few of us opposed that level of stimulus at the time. In fact, the Labor Party, if they were in government, would have wanted to spend more, but we all recognised that, because we had to lock down because we had a pandemic, the government had to support the economy. Now we’re left with this, the hangover of an inflationary crisis. Yet, being out of a pandemic, having no recession and having very strong economic growth otherwise, the government still has put more money into the economy than we’ve ever seen in a budget since the global financial crisis.
Back in the 2009-10 budget, which was trying to respond to that financial crisis, when the banking system in the US, and in Europe too, was collapsing and housing prices were under stress, the equivalent table showed that the Rudd government put $29.5 billion into the economy, a figure not that dissimilar to what we saw this week. Notwithstanding all of the Rudd government’s waste on pink batts, school halls and other calamities, they at least had the excuse of trying to fight a global recession. That’s why they put that money in, and it was a sensible thing to do to try to stimulate the economy. How they went about it was just unfortunate, but they were at least going in the right direction.
This week the government is going in completely the opposite direction given what our economy is calling for. To put it in context, apart from the COVID years and the GFC, in other years the next biggest stimulation was the $14.9 billion in 2018-19. So this amount of $21 billion is a very significant amount of extra government spending in a situation where inflation is already at seven per cent. I think it was Mr Chris Richardson who mentioned this the other day, but it was one of the economists commentating who said that the rule of thumb is that every $6 billion the government adds to the economy is another quarter per cent of interest rates. By that rule of thumb, this budget is potentially adding 75 basis points onto the interest rates that families are already suffering under, so that will be to the tune of $300 or $400 extra a month for families already suffering on higher mortgage payments.
This budget now won’t be judged this week. It won’t be judged tonight in the reply. It won’t be judged in the polls that we see over the next few weeks. It’ll be judged in the next six months to a year when we see whether the government’s massively expansionary budget has actually caused the Reserve Bank to raise interest rates further and made things tougher for Australian families—exactly the wrong recipe. It’s such a big amount of spending. I’m being fair to the government; I’m using the net impact of spending. Their actual total increase in spending is $42 billion, but they are netting that off with various tax increases, but they’re nowhere near fully funding those increases in spending, so we’re left with the $21 billion.
Now, admittedly, it’s over five years. I was just on the ABC, and, when I raised the point about the $21 billion being the biggest since the GFC and COVID, a Labor senator, Senator Chisholm, tried to say: ‘No, it’s over five years. The money is spread out over those five years, so it won’t be that expansionary.’ That was a complete lie. That was completely wrong. Again, in that table, it’s helpfully broken down by year, and so, if you look at that row that I mentioned, of that $21 billion in extra spending, $13 billion comes in either this financial year or next financial year, exactly at the time we’re having this high inflation. This is a massively expansionary budget. It is adding fuel to the inflation fire. It’s putting a huge amount of petrol on a fire that’s already out of control. It reminds me of that scene in Zoolander, when they’re having that petrol fight and they’re all throwing petrol on each other and having a great time. We’re all having a great time right now; the economy’s going strong! Murray Watt’s over there with the hose, spraying the Treasurer; the Treasurer is spraying Katy Gallagher, and they’re all having a great time—until someone lights a match and it all blows up. This budget is a powder keg waiting to blow up, because it’s adding fuel to a fire that’s already raging through our economy and through Australian households.
It’s also instructive to go and look at where this money is being spent and what it’s doing. If I draw a comparison to the Rudd government stimulus, at least that stimulus was largely in temporary programs—temporary programs that ended up being complete dogs. But at least the pink batts program and the school halls program had an end date. It was called Building the Education Revolution. Did we have a revolution? Do we remember? Anyway, I’m getting distracted. But Building the Education Revolution always had an end date, so, even if it was overly stimulatory, it was going to ease itself out of the economy. The problem with this budget is that, when you go to the chapter on spending, the big increase in the government’s spending is in social security and welfare. Defence spending stays about the same. Health spending actually falls a touch in the next financial year. Very few other items have significant changes in spending, except for social security and welfare. The problem with that is that this isn’t a temporary scheme or a one-off subsidy. Whether it’s the increases in the JobSeeker rate or the expansion to the single parenting payment, these will be locked into the budget now. They’ll be structural changes to the budget, which will make our clearly quite large structural deficit permanent and ongoing.
Again, I wonder what the strategy here is, from an economic point of view, in responding to the inflation crisis we have. I’ve just found the figures here. Social security and welfare will cost us $226 billion this year. It’s by far the biggest single function or expense function of the budget, and it’s due to grow, in just one financial year, from $226 billion to $250 billion. That’s 10 per cent growth in one year. Then it’s going to grow another $13 billion the year after that, another $14 billion the year after that and then just shy of $11 billion the year after that. They’re locking in and baking in a massive expansion of our welfare program. That’s in the context of their estimates being that our economy will have pretty strong employment and therefore won’t necessarily be paying out welfare to a lot of people. If those assumptions change, those figures will easily grow to over $300 billion a year in spending. Again, this is not a very well-formed response to the crisis we have right now.
The other major economic crisis we have that the government should—and I would hope—respond to at the moment is our shocking productivity performance. We’ve actually now got lower productivity than we had before coronavirus. We’ve had pretty stagnant growth for the last 20 years, along with almost all other Western countries, but in the last few years we’ve actually fallen. We’re producing less with the same amount of labour and capital, and that actually adds to inflation too. These issues are somewhat separate—productivity and inflation—but they are also, in a way, connected because, as the Reserve Bank governor said, if we can increase our productivity performance and produce more goods, that’ll soak up the excess money supply that we clearly have right now post COVID and help reduce inflationary pressures in the broader economy. So it should be a major goal of any Australian government that wants to respond to the inflation crisis we have to increase our productivity, to have certain policies and plans to do that. It’s a very difficult thing to do. There’s no particular lever the government can pull, but they could try. But there’s not even an attempt here, in this budget, to do that. Certainly, expanding welfare spending is not going to do that. Investing in dams or major roads, attracting new investment, reducing regulation and red tape—those sorts of things could help increase productivity. But the government has cut funding for dams and the government has put in massive amounts of new regulation on our energy sector, including price caps, which is going back to the failed policies of the 1970s. None of their policies that I can see are doing anything to help our productivity performance and, therefore, also make the job of the Reserve Bank governor easier.
The big problem in this budget is that Philip Lowe had a tough job—somewhat of his own making, but that is spilt milk—before Tuesday and he’s got an even tougher job now. I do wonder if Mr Lowe actually had a bit of a hint of what was coming this week, because he did shock a lot of Australians. He certainly shocked the markets and shocked the business community with his decision to raise interest rates earlier this month. I’m sure he speaks to people here in this place who would have had a bit of knowledge about the overall macroeconomic situation of the budget and where it was going to go, and maybe he was getting ahead of the curve here by raising interest rates in an unexpected way. That might just be the first of the interest rates we can blame on the government’s ill-timed and ill-thought-through massive expansion of government spending. But there may be more to come, because this is a pattern, unfortunately, for the Australian Labor Party. There are not the likes of Paul Keating or—I’ve forgotten their finance minister’s name in the eighties. There are not those sorts of giants there anymore.
Senator Scarr: Peter Walsh.
Senator CANAVAN: Thank you, Senator Scarr. There’s no-one around that cabinet table that seems to be able to say no. Let’s face it: Senator Gallagher is a nice person, but I can’t see her intimidating anybody around the Expenditure Review Committee, with all respect. Again, Jim, he’s a hail-fellow-well-met sort of fellow. He doesn’t inspire confidence that he’s got any guts and a ticker to say no and to make tough decisions. They’re just kicking the can down the road. They’re addicted to spending your money. The Australian Labor Party are just addicted to it. They think it’s their money. They tax you. They raised taxes in this budget by $20 billion. They spend another $40 billion, and then they have the gall to say they’re fighting inflation. Their own figures damn them. They are totally misreading the Australian economy. They are wasting your money, they are taxing you more and they are doing nothing to help you pay your bills and get the cost of living down.
Question agreed to.
