The economy: proposed narrative

Treasury has told us that economic growth will be the weakest for 50 years. A key question is why they did not tell Rudd'n'Gillard'n'Rudd that the commodity boom they enjoyed so much would end soon (as all previous commodity booms had) and they should therefore not spend like drunken sailors? If such a message was delivered, it would be good to know, Dr Parkinson, preferably now but at least as soon as you are free to write your biography. Today's blog aims to provide a draft narrative to position the tough decisions needed now to minimise future misery for many Australians.

Of course, it seems highly likely Treasury did not sound the relevant warnings. If they had, Treasurer Swan would presumably not have constantly predicted a strong economy whose budget would whirr back into surplus not too long into the future. Did Treasury and/or successive governments really think Australia was a 'miracle economy' owed a living high on the hog for the feasible future?

Now it is time to sort it out, and Messrs Abbott and Hockey are hard at work telling us it is a whole lot worse than Treasury and Treasurer Swan believed only 6 or so short months ago. Gor blimey, comrades, it now looks pretty gruesome.

We have been told, correctly, that budget repair is going to take a unified effort from all Australians. Rich folk will cop a tax levy. While pensioners will have their pensions left alone, future pensioners can expect to work for longer. Families earning over $100 K will have to manage without handouts, which seems fair enough to the Thornton family.

Big spending schemes will need to be downsized/implemented more slowly, as even the PM's paid parental leave plan has been trimmed. Since Tassie has turned its back on the NBN, the largest and least useful white elephant of the Rudd'n'Gillard'n'Rudd administrations, why not just cancel the whole idea and let people make their own arrangements for fast internet? Radical, perhaps, but the simplest way to save a lot of money Henry can imagine.

Henry has been priveleged to be the recipient by email of a lovely punch-up between Terry McCrann on one side and John Stone and Des Moore on the other. McCrann has supported the mooted 'tax levy' even if it will raise a relatively small amount, perhaps $2 to $3 billion. Messrs Stone and Moore say this is tiny relative to the overall budgetary problem and suggests it indicates lack of appropriate resolve to cut spending. Whilst one can agree with them on the size of the proposed levy, the political imperative of 'sharing the pain' is presumably the reason it is in the mix.

And on another point of political economy, every responsible commentator agrees that Labor's drunken sailor spending is most of the reason for the budgetary mess, along with the end of the best part of the commodity boom. Current attempts by Labor (and Labor's coalition partners, the Greens) to frustrate the government's attempt to fix the budgetary mess is full of contradictions and illustrates either blind stupidity or gross hypocricy.

The government is taking a beating in the polls and one hopes by budget time it has sorted out the 'narrative' into a few simple propositions.

Here is a first draft:

1 The budget is in big trouble, and Australia has become very uncompetitive. (Provide examples.)

2. Australia's strategic mistake was to assume record terms of trade would last forever, which produced overspending by governments and unsustainable increases in incomes, including welfare payments generally.

3. The Labor Green alliance boosted government outlays with a number of overly-ambitious spending programs. (Specify)

4. The current government is responsible for fixing the budget, which involves cancelling programs we cannot afford, slowing and/or making less ambitious programs Australia currently cannot afford in their current form.

5. Every Australian must share the pain, which includes a modest levy on marginal rates of tax above $xxx K. It will include a 20 % temporary cut in politicians' salaries (or, if this is not feasable, a voluntary cut in government salaries or equivalent payments to a recognised charity. The government also urges all Australians who feel they can afford to do so to increase their contributions to recognised charities.)

6. Companies whose costs are making them uncompetitive are urged to talk with their workforces to seek changes to remuneration practices, either temporary or permanant, to restore competitiveness. Top managements should take the lead in accepting cuts to their remuneration of a similar proportionate magnitude they wish their staff to adopt. To the extent that productivity can be improved, remuneration cuts can and should be smaller.

7. Specific promises made before we knew the magnitude of problems facing the nation may need to be postponed in whole or in part. We apologise for this but note that officials did not warn of the size of the problems we are now dealing with, nor did the major business representative groups, or indeed most economists or journalists.