Budget bills Generation AA

The 2015 Federal Budget represents a capitulation by the government to the ALP and the Senate and builds a populist base for the next election.

Outlays are projected to be 25.9% of GDP, which is a similar level to that hit by Rudd after the GFC, Keating in the 90s and Fraser and Hawke in the early 80s. In fact it is well under the Hawke level.

But these other periods were periods of economic emergency. 1983, the first year of the Hawke government, was the worst recession since the Great Depression at that stage. In the early 90s Australia faced the “recession we had to have”.

But at this time the government is projecting reasonable GDP growth of above 2% and there is no economic crisis.

This means that permanently higher expenditures and therefore taxes, have been wired into the system.

It wasn’t where Abbott meant to be, but faced with the prospect of a reception like last year he has obviously opted for a politically palatable budget which doesn’t rock the boat.

At the same time, by giving a favourable tax treatment to smaller businesses it loads the dice a little in favour of greater employment growth and greater efficiency.

This, coupled with accelerated depreciation for amounts under $20,000, should rev the economy up in the next few years, helping to compensate for the ending of the mining boom.

But the budget still retains its booby traps far into the future in the shape of the NDIS, which is not means tested, and which continues to be deployed, and the unsustainability of our retirement system.

There has been some trimming of entitlements to the aged pension, which will hurt the Coalition’s base vote, with the asset taper being made twice as steep, meaning that people who have assets outside the family home will find it harder to get the pension.

But this doesn’t solve the problem as returns on assets are lower than they have historically been, meaning that these excluded Australians will have to sell assets to survive, so will come within the means test quickly enough.

By not touching the family home it also means that potential pensioners have an incentive to put all their assets into the home rather than assets which might be more productive for them, and also for the country.

Because of the situation in the Senate it is difficult to see Abbott managing to get anything but a big spending budget passed.

Here Labor is the problem as without its support the cross benches have no power of veto.

But unlike Howard during the Hawke years, Shorten is not interested in playing an honourable hand and allowing good reform to pass.

This is partly because it’s not his inclination (and in fact Howard is the only Opposition Leader who has put partisan advantage aside for good policy) but also because the modern Labor Party does not seem to recognise what good economic policy is.

The Rudd/Gillard style of economic management was shambolic with a huge increase in outlays which they tried unsuccessfully to fund by mugging power consumers and the mining industry, both measures which decreased national productivity and efficiency.

This budget will be criticised as “unfair”, which is code for “someone lost a benefit”. Such criticisms are without substance. You need a double entry approach to fairness. For everyone who gains a benefit there is someone who pays for it, who may well be in need themselves.

Those payers are not the current generation, but future generations who will have to pay the debt back at some stage either through cash or inflation.

This is an unfair budget, and an unfair generation (assuming its politicians are representative of it), as it is not only eating the past – the surpluses and assets laid up by those who have gone before – but it is eating the future – which should belong to its children.

Not sure what the younger generation will say when it realises what a mess its parents are making, but it could make for interesting retirements for those of us who are in our 50s and 60s.

They will not be happy, nor should they be.