Santa Claus budget fails to deliver for future

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?"