A ‘caring’ budget would have put productivity first

There is more care than productivity in this budget. Literally. "Care" is one of the most frequently used words in the budget, with 20 mentions, while "productivity" has just four. But without productivity there can be no care.

Yet, if we are to pull ourselves out of the hole we have dug ourselves into, increasing productivity is the most important thing.

While Treasurer Jim Chalmers seeks to forge a link between himself and the "Placido Domingo" of treasurers, Paul Keating, it takes more than growing up in an outer-suburban working-class electorate to make a great treasurer. By the same token, it takes more than being brought up in social housing, the child of a single mother, to make a great prime minister.

From the beginning, Keating was a reformer, the reform made more urgent by the difficult economic circumstances of the time. He was the hardman of his government, second only to the finance minister, Peter Walsh.

In a series of text messages from two weekends ago between Keating and Chalmers, where the treasurer seeks to forge the connection, Keating said he had no need of focus groups.

But it would appear that focus groups, the ones that crafted the policies taken to the last election, and the ones who undoubtedly cast their eye over this budget while it was being fabricated, are designing policy.

If Henry Ford had asked focus groups what they wanted, he would have bred a horse that was lighter, faster, ate less hay, and carried its own manure disposal bag instead of a rickety black vehicle with spindly wheels and a combustion engine. But thank God he didn't.

This budget purports to be faster, lighter, more sustainable, and "caring" when the country needs a new engine with grunt and some tough love.

Tough love is something that Labor can more easily give than the Coalition because of its reputation for being more compassionate.

Nothing to improve productivity problems

The treasurer once appeared to know productivity is the key. Yet, here he is in March this year, addressing the Productivity Commission's report: "If we stay stuck on the current course … future incomes will be 40 percent lower and the working week five percent [2 hours] longer."

On May 10, Prime Minister Anthony Albanese told ABC's 7.30 Report that the previous government had been in power for almost 10 years but had lost its way. It seems this one has no way to lose.

If it had either guts or gumption, it would be doing something to fix Australia's declining productivity.

It would also have produced concrete plans for dealing with Australia's biggest financial black hole, the National Disability Insurance Scheme (NDIS), kept a tight rein on welfare spending, and worked out ways to get older Australians back into the workforce while stripping away impediments from business and investment.

Instead, it is adding to structural costs and cramping productivity growth.

The focus groups are cheering now, but they won't when they experience what is around the corner.

The four times the treasurer mentioned productivity, it was in the context of measures that were, at best productivity-neutral or -destroying.

But at least they were caring!

The first three times were when he dedicated $7.5 billion (US$5 billion) to spending on childcare, parental leave, medicines, housing, and wages. But, worthy as all these things might be, the policies do not positively impact productivity.

Paying more for the same, or working less, by definition, lowers productivity unless there is some step-change in efficiency. But step-change is completely missing here.

Education and debt for what?

The fourth time was about "fee-free TAFE and university places" and the Powering Australia Plan.

Education is a good idea, but giving it away isn't. It's not obvious why TAFE should be free when university education isn't. Or why an extension of courses in either will do more than transfer public money to the educators' purses.

Tertiary education has become a trap for many where the institutions oversupply students for industries that don't need them, blighting students' hopes and loading them up with HECS debt that cramps their ability to save and invest, for example, in a house of their own.

At the same time, employers complain that the students they hire need to be retrained anyway.

So we take people out of the workforce for three years, load them up with debt, and at the end of it, they are about as useful to an employer as if they hadn't gone to university in the first place. Not all, of course, but a significant minority.

Is this supposed to enhance productivity?

Net-Zero pursuit putting energy producers out of business

Powering Australia is a policy that is guaranteed to destroy productivity. Decarbonisation is going to make us all poorer because it is going to put the price of power up, amongst other things.

Politicians claim we're going cheap, green, and clean.

While their preferred wind and solar technologies might appear cheap, they raise system costs because they cannot stand alone and require expensive storage, networks, and gas-fired power to complete the circuit.

The government is spending $2 billion on a hydrogen hub in Queensland as part of this plan. On current chemistry, green hydrogen consumes seven watts of energy for every one watt it stores.

Hardly productive!

This photo shows the Liddell Power Station after it officially shut down operations in New South Wales, Australia, on April 28, 2023. (Courtesy of AGL Energy)

The energy transition might be necessary, but there is no point in fudging the cost.

The government is trying to recoup some of the loss through higher taxes on mining companies.

This budget does that by adjusting the Petroleum Resource Rental Tax, a change that makes it less likely anyone will ever want to drill a greenfields project in Australia again.

In this year of the coronation, Australia has a second sovereign-sovereign risk.

Offshore oil wells are tremendously expensive, and risky, and take years to pay off. Why take that risk if some government is going to retrospectively alter the terms of the deal just when you see a decent return on your income and when you know prices will dive again at some time in the future?

Failure to deliver housing solution

Australia's most "successful" export industry this budget appears to be immigration, but this hobbles another area of government policy-housing.

We have a shortage of houses.

The 400,000 migrants expected to arrive this year and the 300,000 next will make that shortage worse.

Traditionally, Australia has a highly productive housing sector driven mostly off the back of private owners who live in or rent out their properties.

Current government policies are tilting away from that and providing tax breaks to favour corporate "build-to-rent" operations and discourage private landlords.

That won't produce more housing, just divert resources from efficient private landlords to less-efficient corporate ones.

It will also produce a style of housing that is only suitable for rent, robbing our housing stock of the flexibility where a renter's house today can become a first homeowner's tomorrow.

I appreciate the sentimental tugs of where and how you grew up and wanting to do the right thing by people. But sometimes you have to look to the future, and a more productive society is a richer one which can provide more for everyone.

"Future" was mentioned even more times than "care," but it will be a bleak one if we can't get the basics of growth right.