Australia’s leading economists have struggled to grade this month’s budget.
Challenged by the Economic Society of Australia and The Conversation to rate it on a scale of A to F when judged by its stated aims of rebuilding the economy and creating jobs, none of the 43 economists who responded gave it the lowest grades of E or F.
But most who gave it a pass were unhappy.
Financial markets expert Kevin Davis praised “the willingness of a conservative government to adopt needed large deficit spending at variance with its ideology”.
Economic modeller and former Reserve Bank board member Warwick McKibbin said he would give it an A for scale.
But Davis said tax cuts “to the better-off employed” weren’t the best way of achieving desired outcomes, and McKibbin said the composition could have been much better designed.
“There was an opportunity to invest in green infrastructure as part of a fiscal response and a climate/energy policy response that would have longer-term economic and environmental payoffs,” McKibbin said.
“For spending support, transfers to low income households rather than income tax cuts would have given a bigger bang for the buck. Greater support of childcare would support incomes and labour supply.”
Bob Breunig said the design of the childcare benefit created a well-documented income cliff for second earners making it difficult for them to work more hours. It was a known problem and would have been easy to fix.
Hard hats instead of soft skills
The Grattan Institute’s Danielle Wood said it was “absolutely the right call to change course on fiscal strategy and recognise the need for sizeable stimulus, so marks for that”.
But the budget “very much bet the house on a private sector-led recovery”.
Where it had spent money directly it mostly went to “hard-hat” professions such as infrastructure, construction, manufacturing, defence, utilities and energy.
“Some of these sectors haven’t even seen job losses during COVID,” Wood said, and there is already a healthy pipeline of work for transport infrastructure projects, so why spend your stimulus dollars here?“
Renee Fry McKibbin noted that the burden of COVID-19 falls on front-line workers in health, caring industries, hospitality, tourism, arts and education, yet she said the budget focused on sectors "traditionally dominated by men”.
Climate change overlooked
Wood said the price of those blindspots would be a weaker recovery than otherwise, unemployment higher for longer than it could have been, and women’s economic disadvantage entrenched.
Labour market specialist Sue Richardson said relying on incentives such as instant asset write-offs and hiring subsidies was risky because the private sector might not respond in the way that had been hoped.
What direct spending there was seemed “intended largely to recreate the economy of the past, rather than invest in the economy of the future”.
“The economy of the future will, among other things, need to have much lower greenhouse gas emissions and much greater ability to cope with the unavoidable damage arising from climate change.”
How we handle the recovery will either set us on a path towards net-zero emissions or lock us into a fossil fuel system from which it will be hard to escape.
Saul Eslake gave the government “great credit for being willing, explicitly, to recalibrate its budget strategy” and run up what (for Australia) were large amounts of debt.
On average, a bare pass
But he said the measures chosen would be less effective in delivering jobs and recovery than others available including vouchers for spending in sectors hard-hit sectors and spending on social housing and childcare.
All but one of the 43 economists who responded to the survey also responded to the pre-budget survey which nominated spending on social housing, education and training and permanently boosting JobSeeker as the top budget priorities.
Assessing the budget, 16 of the 43 (37%) awarded it either an A or a B. Almost half (49%) awarded it a C, or “bare pass”. Six (14%) gave it a D.
- ^ rebuilding the economy and creating jobs (ministers.treasury.gov.au)
- ^ It's not the size of the budget deficit that counts; it's how you use it (theconversation.com)
- ^ High-viz, narrow vision: the budget overlooks the hardest hit in favour of the hardest hats (theconversation.com)
- ^ Budget 2020: promising tax breaks, but relying on hope (theconversation.com)
- ^ pre-budget survey (theconversation.com)
- ^ CC BY-ND (creativecommons.org)
- ^ forward guidance (budget.gov.au)
- ^ Top economists back boosts to JobSeeker and social housing over tax cuts in pre-budget poll (theconversation.com)
- ^ the one thing recommended by most economists (theconversation.com)
Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University