Federal Budget Forgets What Hawke Knew About Growth

Written by:
4 June 2024
Federal Budget Forgets What Hawke Knew About Growth - Featured image
Originally Appeared In

State Library of South Australia, CC BY 2.0 https://creativecommons.org/licenses/by/2.0, via Wikimedia Commons

In this article, Daniel Wild contextualises and disseminates the findings of the IPA’s research into the Australian budget and cost of living.

‘We will not be able to just spend our way out of the mess: we must work our way out of it, work our way out of it together,’ said then opposition leader Bob Hawke in a seminal speech delivered in Sydney just a month before the 1983 election.

Hawke went on to argue, ‘It is time for controlled, responsible, stimulation of the Australian economy … what I do offer is a program to produce growth and expansion in the economy.’

Over Hawke’s time as Prime Minister, average annual real economic growth hit 3.5 per cent, on the back of substantial reform and a desperately needed restructuring of the Australian economy.

Hawke provided vision, leadership, and ambition for our nation’s future, and could excite Australians about their own prospects.

How things have changed. The 2024 Federal Budget was as abysmal as it was demoralising. It was a redistributionist budget; not a growth budget. The Treasurer’s speech did not contain a single mention of the word ‘productivity’.

While on the one hand, the Treasurer has committed to removing hundreds of so-called ‘nuisance tariffs’, he has also committed to a new era of green protectionism by committing at least $22.7 billion in taxpayer dollars to renewable technologies that would otherwise be commercially unviable.

Even the government’s own hand-picked head of the Productivity Commission, Danielle Wood, who could hardly be described as a climate sceptic, said subsidies for low-emissions technologies would ‘take jobs and capital investments from elsewhere in the economy where they could generate higher value’.

It says everything you need to know about Australia’s political class that in the week after the budget was delivered the political debate about our economic future has largely boiled down to whether a $300 energy bill subsidy should be means-tested or not.

This merely reinforces that while Australians under this budget will be getting poorer, faster, Australia’s political leaders have yet to grapple with the fact that we are entering a period of dramatically declining living standards.

It is astonishing that the budget itself, which usually contains the rosiest set of economic forecasts, admits that real economic growth will remain in the twos for the next five years. That’s a long way from the threes, fours, and even the fives of the Hawke years.

These numbers matter. A one percentage point improvement in economic growth is worth around $25 billion, which is nearly $1,000 per person – or more than triple the much-debated energy bill subsidy, without impacting the budget bottom line.

What is worse, the energy bill subsidy is required because of government policy which has pushed up power prices. And the low-income rent assistance is only required because of the government’s out-of-control migration intake, which has made housing unaffordable for many, especially those on low incomes. It would be much better to address the causes of these problems, rather than apply ever more expensive band-aids.

Australians are beginning to ask when our leaders stopped being ambitious for the future of our nation. There is no fundamental reason why we cannot grow at three or four-plus per cent each year, other than a lack of ambition and pro-growth policies.

Worse still, the budget confirms the majority of our economic growth will continue to come from mass migration, rather than from improved productivity. Growth driven by population may benefit the rent-seeking class, such as universities and big business, but it greatly diminishes per capita growth, which is a much better proxy for living standards than headline economic growth.

The Australian Bureau of Statistics estimates that Australia’s population could grow by 1.8 per cent per year over the next four years. This means that, on the figures presented in the budget, in a best-case scenario, per capita growth will limp along at less than one per cent.

This is on the back of four consecutive quarters of negative per capita growth. The last time incomes saw such a sustained decline was over 40 years ago, in the midst of a global recession.

In addition to failing on growth, the budget also fails to rein in spending. Many Australians would be surprised to learn that the fastest growing spending item in the budget is not the NDIS, which will grow at around 9 per cent per year. It is interest payments on debt, which will grow by around 12 per cent per year. Total interest payments on debt are scheduled to reach $35 billion by 2028, which is just under $100 million per day.

While Australia’s greatest Labor Prime Minister rightly said we cannot spend our way out of a mess, the present government is certainly going to give it a try.

Support the IPA

If you liked what you read, consider supporting the IPA. We are entirely funded by individual supporters like you. You can become an IPA member and/or make a tax-deductible donation.