Santa Claus budget fails to deliver for future

The federal budget was rather like Christmas Day with a family that has just won division two in the lottery. Eager backbenchers squealed with delight as they unwrapped their new bikes, dolls and iPods. Their indulgent parents looked on happily, basking in the glow that only spending heaps of money can bring.

Unfortunately this feeling probably won't last, because Mum and Dad face big challenges ahead, and they've gone and spent all the money. The children may not thank them in 12 months when times are tougher and the new toys are long forgotten.

The minerals boom has rained bucket loads of money on the Howard Government. And they've spent the lot. Some of it wisely, some not so wisely. The budget estimates reveal that the government anticipates receiving an amazing $41.1 billion more over the next three years than it expected only six months ago. They also show that the latest round of tax cuts and new spending will cost the budget even more, a staggering $42.8 billion.

The budget is littered with dubious spending initiatives: $52 million is allocated to "increase consumer awareness of the incentives and benefits associated with private health insurance". Not content with subsidising the product and forcing people to buy it, the Government is now picking up the industry's advertising bills.

Lots of small sums are handed out to ostensibly worthy causes, such as $1 million funding for a Donald Bradman memorabilia tour of India; an extra $1.5 million grant to the Stockman's Hall of Fame; and a further $200,000 to finance the voyage of the Duyfken replica; while $900,000 is allocated to encouraging young people of diverse backgrounds into surf lifesaving, presumably the government's solution to the Cronulla riots. Other not-so-small amounts are also splashed around, such as $15 million for the Melbourne Cricket Club to set up a national sports museum.

Much of the largesse is distributed in the present financial year. The Howard Government now has this political equivalent of "cash back on your trade-in" down to a fine art. It's a simple trick. Once you know this year's surplus is going to be bigger than forecast, you just give it all away in one-off payments. Some involve big dollars, such as bonus cash payments to carers and pensioners. But there's also a long list of small giveaways, such as donations to the Duke of Edinburgh Awards, the Australian Wildlife Hospital, the Red Shield Appeal, the Belvoir Theatre, Bond University, St John's Cathedral, Brisbane, the National Institute for Circus Arts and the Musee de Quai Branly in Paris.

Handing out taxpayers' money indiscriminately is deeply embedded in the Howard Government's DNA. Billions of dollars have been squandered through Networking the Nation, Regional Partnerships, the Natural Heritage Trust and the Centenary of Federation Fund, entrenching an entitlement mentality throughout the community.

The government pontificates about budgetary pressures from population ageing, but behaves in exactly the opposite way. Can anyone remember the last Razor Gang?

The real tragedy of this budget is the government's refusal to use our temporary good fortune to invest for the future. Barely more than 1 per cent of the $41 billion windfall is allocated to new investment in education and training, only slightly more than the new spending provided for agriculture, fisheries and forestry.

Australia is the only developed nation whose public spending on higher education and training is falling. Only 60 per cent of Australians between 25 and 64 have Year 12 equivalent qualifications, compared with more than 80 per cent in countries such as Canada and the US. Young graduates are working overseas to defer payment of enormous HECS debts. Yet advertising private health insurance and funding sports museums takes priority.

The budget contains no serious economic reform agenda. High effective marginal tax rates for middle-income earners are still a big disincentive to work, and the Tax Act remains more than 9,000 pages long. The modest nature of the reform is indicated by the recycling of the claim made six years ago about the GST package, that more than 80 per cent of taxpayers will be on a top marginal rate of 30c.

Little is being done to expand child care availability and thereby improve workforce participation. The government still has no serious reform agenda in sectors such as telecommunications, broadcasting, aviation, agriculture, injury compensation and health. Projected superannuation changes may increase workforce participation, but only at great expense to the tax base and future age pension commitments.

Productivity is hardly mentioned in the budget strategy and outlook paper. As it has been declining for two years, this is hardly surprising. Foreign debt is brushed aside, in spite of a forecast further increase in our already huge current account deficit.

Exports are predicted to grow by 7 per cent, even though similar claims have been made for the past five years and actual outcomes have not even come remotely close. The giant giveaways are already putting pressure on interest rates. Implied yields on March 2007 bank bill futures rose by about 10 points almost before the Treasurer Peter Costello had finished his speech. If the mineral boom windfall was being invested in future capacity, the longer-term pressure on interest rates would be downward.

The true recklessness of the budget, however, is in its rapidly escalating reliance on overflowing company tax receipts. In 1998-99, company tax delivered 14.2 per cent of total revenue. In 2006-07 it will deliver 24.5 per cent. Its contribution is projected to wane only slightly in later years. In effect, the budget assumes a huge, indefinite windfall, and the government has used it to cut other taxes. Watch out for the pain when company tax receipts return to normal levels.

Peter Costello's children might be enjoying their new toys now, but the future looks much more uncertain. While the government pours money into consumption and entitlements, younger Australians are being starved of the opportunity to build a stronger, more dynamic economy. We are eating their future. In a few years' time they may well be asking: "Daddy, where did all the money go?"