Recent governments, both Coalition and Labor, have adopted the practice of dropping large chunks of the annual budget to selected journalists, who in return are expected to report it sympathetically.
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Although often the information is described as a budget "leak", that's not really the case. It is true that technically the Australian government's budget is confidential until the Treasurer reveals its contents at the time of the budget speech. If details were passed secretly to the press by a well-informed public servant it would be a leak - a scandal of consequence. But when it comes from the Treasurer's or a Minister's office it is not so much a leak as a media management strategy. By getting information out early the government gives itself the benefit of two announcements - once with the "leaked" information, and a second time on budget night itself.
This year has seen fewer than usual instances of foregrounding of the media. It looked like some were still being worked out late in the budget process, including those responding to the government's perceived areas of policy weakness - for example, in relation to climate change, mental health or violence against women. The likely biggest area of new spending will however be on aged care in response to the report of the Royal Commission - that's been obvious for months. How much is uncertain. There has been speculation around a figure of $10 billion over four years, but no firm indication of what exactly the government proposes be done within that envelope. It may seem a large number, but is well short of what the Grattan Institute says is needed. They estimate some $7 billion a year would provide older Australians with the care and support they need. Even that figure is conservative compared with other estimates of up to $20 billion.
It seems unlikely the government is contemplating going that far. One of the problems for a government still committed to eventually getting the budget back to balance - a goal supported by among others various business interests and the Australian Financial Review - is that they are afraid of locking in high levels of spending that can never be wound back. That is why the JobKeeper and JobSeeker subsidies were only temporary. Although they were absolutely needed to support the economy during the COVID induced recession, the government did not want to maintain them indefinitely.
That said, debt and deficit is no longer the scary budget monster of old. If there is one lesson from Australia's experience with the economic impact of COVID lockdowns it is that keeping the economy ticking over so as to maintain employment is far more important that rising government debt.
So far neither the government nor opposition has gone to the extent of embracing modern monetary theory. This relatively new and still controversial strand in economics argues that a government that issues its own currency can never default on debt and can fund any desired level of spending, limited only by inflation. While globally and in Australia inflation is at record lows, the proponents of MMT argue, additional spending is desirable to boost employment.
This is however something of a moot point when unemployment is falling fast, so much so that the government is likely to have to revise its announced economic strategy of supporting the economy "until the unemployment rate is comfortably back under 6 per cent". The increase in jobs is of course good news - but will require a different budget strategy.
Recent experience confirms that a higher deficit is something we can easily manage. It's all about relativities. By comparison with almost any other developed country in the world Australia is doing well both in combating COVID-19 and in economic recovery - so will continue to attract funds even with a high deficit. Nevertheless many people on the Coalition side of politics would still prefer to eliminate the deficit not so much because of an aversion to debt but because reducing the deficit implies lower spending, shrinking the size of the public sector.
Those people are likely to find the budget disappointing. The government will want announcements to draw attention away from the delays in the vaccine rollout (a problem largely of its own making, expectations created around the timetable it announced initially).
There is fiscal headroom for eye-catching announcements for new government spending (likely to be of a one-off or project nature so as not to lock in spending) provided the Treasurer does not reset the budget strategy to debt elimination. There is no need for him to do so. The fiscal position the Treasurer will outline in the budget speech will include record deficit and debt - but it will be perceived by markets and analysts as a good result because a year ago they were expecting it to be much worse. That's the theatre of budgeting. A budget bottom line that would have attracted damning criticism pre-COVID will now be seen as positive.
A further budget variable as yet unresolved is how much additional funding is needed for vaccine rollout. State and territory Premiers and Chief Ministers do not want to be portrayed as blackmailing the Commonwealth - but it seems certain the Australian government will be obliged to provide them with a significant funding boost. Any estimates today of how much that will cost will be rough guesses at best - an alternative vaccination approach will have to planned and delivered with care, which will take time. At least, though, we know the budget has enough capacity to provide the funding required.
- Stephen Bartos is a former Finance Department deputy secretary.
