The federal government will present its budget on Tuesday.
She will tell voters that her budget represents her “plan” for Australia.
This will be true because budgets always reveal a government’s plan for the country.
But they also do something else.
They provide an opportunity to look back at past budgets to see the impact previous budget plans have had on the community.
Do budget plans always work?
Apparently they do. It’s wonderful.
The budget plan always works
This coalition government has been in power for almost nine years.
During this period, it had three different prime ministers and three treasurers due to power struggles.
It has published eight annual budgets and this week it will publish its ninth.
All of his budgets can be divided into two groups.
The first group contains the first six budgets and budget updates (for the period from late 2013 to early 2020).
The guiding philosophy for this first set of budgets was twofold.
The government wanted to manage the economy’s transition from resource to non-resource growth drivers so there would be tax cuts and other tax incentives for companies and individuals.
But one also wants to “bring the budget to a surplus”.
This meant that while the economy was weak, the government also attempted to maintain a surplus by taking more money out of the economy via taxation than it put into it.
As its first leader, Tony Abbott, said, “You can’t fix the economy until you fix the budget.”
The coalition embarked on this path when it was elected in late 2013.
Was it the right plan for weak economic conditions?
The coalition began its period in power by warning voters that the economic outlook was weakening and job growth would suffer.
Wage growth was said to be slowing and the unemployment rate to rise.
It said slowing wages and household concerns about rising unemployment would limit consumer spending.
But it said the slowdown in wages would benefit the economy because it would give companies an “extra incentive” to hire workers.
So that was the plan.
And every year on budget night, voters were told the plan was working.
- Treasurer Joe Hockey, May 13, 2014: “This budget will help build a more prosperous nation.”
- Treasurer Joe Hockey, May 12, 2015: “Our business plan is working and things are going better.”
- Treasurer Scott Morrison, May 3, 2016: “This budget is an economic plan. It’s not just another budget.”
- Treasurer Scott Morrison, May 9, 2017: “This budget is a plan that can be trusted and supported.”
- Treasurer Scott Morrison, May 8, 2018: “We have to stick to this plan because it works.”
- Treasurer Josh Frydenberg, April 2, 2019: “This budget builds on our plan for a stronger economy.”
However, when the COVID-19 pandemic hit Australia in early 2020, things changed abruptly.
The budget strategy had to be changed
The government’s budgetary philosophy has been turned on its head by the pandemic.
It has been forced to put aside its desire to run budget surpluses as it has had to spend hundreds of billions of dollars to keep people alive during lockdowns.
In August 2020, a former Treasury Secretary, Martin Parkinson, was invited to a podcast to speak about the pandemic and the emergency the economy has been facing that year.
dr Parkinson said he was very concerned about Australia’s ability to deal with the economic crisis as the economy was in such poor shape prior to the outbreak of COVID-19.
“At the beginning of COVID, we had very weak productivity growth, very weak income growth, economic growth was pretty anemic,” he said.
“If you look at our productivity performance over the last decade, it’s been about a quarter of its long-term average.”
The observations of Dr. Parkinson raised a question.
Australians up to this point had been told repeatedly that the government’s economic plan was working, so were these things part of their plan?
Weak productivity growth? Very weak income growth? Anemic economic growth?
In any case, after the pandemic hit Australia, the guiding philosophy for the government’s second budget group was economic survival and recovery, backed by a tremendous amount of stimulus.
It included deficit spending.
Treasurer Josh Frydenberg dismissed his party’s original budget slogan.
He reversed it, telling voters, “You can’t fix the budget until you fix the economy.”
And he’s since said his plan worked.
- Treasurer Josh Frydenberg, October 6, 2020: “We have a plan to rebuild our economy and create jobs.”
- Treasurer Josh Frydenberg, May 11, 2021: “Our plan works.”
In fact, elements of his plan caught authorities by surprise.
The government’s extraordinary stimulus packages, the Reserve Bank’s ultra-loose monetary policy and the decision to close Australia’s international borders during the pandemic have all combined to have a significant impact on the labor market.
Our cities have emerged from lockdown, the vast majority of people have finally been vaccinated, and people have found jobs again.
The employment rate and activity rate have reached record highs.
The number of people officially unemployed has fallen to levels not seen since 2009, and the underemployment rate has fallen significantly.
The unemployment rate has fallen to 2008 levels and there are projections that it could fall to levels last seen in the early 1970s.
Reserve Bank Governor Philip Lowe says the rate at which the unemployment rate has fallen and the level to which it has fallen has surprised everyone.
He says the upbeat jobs results prove stimulus spending is working.
What about that budget?
So what’s happening with this week’s budget?
Well, we know that the fiscal result will benefit from rising commodity prices, partly triggered by Russia’s invasion of Ukraine.
The budget could also post higher than expected tax revenues due to stronger than expected employment and lower unemployment.
But you will also hear something else.
It wouldn’t be budget night if we weren’t told the government has a plan.