Spending other people’s money has to be among the easiest things in the world to do. Politicians do it all the time, fudging the fact that it’s not the government doing the spending, rather it’s conscripting taxpayers, both current and future, into doing the spending.
And now Covid has presented month upon month of salad days during which politicians spent like it could never go out of fashion. This was ostensibly done to offset the negative economic and labour market effects that were actually the result of politicians’ often misguided Covid-related restrictions. You know it makes sense.
This ‘virtuous’ cycle of more restrictions/more spending actually suited most of these jumped-up politicians whose sense of self-importance swelled like boiling water added to bicarb soda. The federal treasurer and his state counterparts developed palpable springs to their step – there really has never been a less demanding time to be in charge of the government coffers.
Of course, we wouldn’t have expected any less of most of these finance men. But Dominic Perrottet, Treasurer of New South Wales, should hang his head in shame. Once regarded as a conservative, even an inspirational one, he has demonstrated by his actions that he’s no better than the other carpet-bagging treasurers.
Now I know figures can be boring, but it’s really the only way to illustrate the extraordinary extent to which politicians have pissed money – our money – against the wall in the past twelve months or so.
Consider Australian government spending. In 2018-19, well before any Covid effect, annual spending was around $478 billion. In 2020-21, it is estimated that spending will come in around $671 billion. That’s an increase of over 40 per cent.
In these two years, spending as a percentage of GDP went from 24.5 per cent of GDP in 2018-19 to 33.4 per cent in 2020-21. The Treasury records go back to 1970-71; the figure of 33.4 per cent of GDP is the highest ratio of spending to economic output by a country mile.
And here’s something else important: government revenue was hit by Covid, but not for six. In 2018-19, revenue was 24.9 per cent of GDP; in 2020-21, it is expected to be 23.6 per cent. The drop of 1.3 percentage points was significant, but not catastrophic.
Of course, we know where all this spending went, with the programs having names devised by the marketing types among the ministerial advisers. We’ve had JobKeeper, JobSeeker, HomeBuilder, JobMaker and the list goes on.
There was the extraordinarily generous JobKeeper scheme whereby thousands of part-time workers actually earnt more on the government teat and many highly profitable businesses participated. It will end up costing around $90 billion. This is by far the most expensive government scheme ever implemented.
All that record-breaking spending has led to an increase in government debt at a rate never witnessed before, even during wartime. In 2018-19, Australian government debt was $542 billion. In 2020-21, it is estimated that debt will reach $852 billion. By the end of the ‘forwards’ (offensive technical term for four years), the figure will have reached $1,138 billion.
Yes, that’s right. Australian government debt will be well over one trillion dollars and over 50 per cent of GDP. And this has been achieved by a government that commissioned ‘Back in Black’ mugs in 2019. The only apt part of that saga was the mug bit – us, the taxpayers.
Let’s not forget the bragging. The budget was moving back into surplus. Government net debt would be all but paid off by the end of the decade. There’s almost enough material there to make a full-length comedy film, although the jokes would inevitably be very lame.
Of course, it wasn’t just federal Treasurer Josh Frydenberg, opening the spending spigot. Even though the states were cushioned economically by the actions of the federal government – and indeed given strong incentives to continue Covid restrictions (think lockdowns, border closures) – they also took the opportunity to spend up big.
Gone was any pretence of fiscal responsibility. In Victoria, net government debt will go from a manageable $44 billion in 2019-20 to $155 billion in 2023-24. This means net debt goes from 10 per cent of state output to close to 30 per cent in just four years.
But it’s OK because last year’s budget in Victoria was entitled ‘Putting People First’ because spending other people’s money to be repaid by people in the future is – yep – putting people first.
Unsurprisingly, Victoria quickly lost its AAA credit rating, being marked down two notches. Evidently, the ratings agencies weren’t as impressed with the idea of putting people first as was Victorian Treasurer, Tim Pallas.
Mind you, NSW also managed quickly to lose its AAA credit rating, which was also not surprising given the rapid deterioration in its fiscal parameters. State spending will increase by 11 per cent in 2020-21, over the previous year, and the budget deficit will come in close to $16 billion.
NSW government debt was also a manageable $19 billion in 2019-20, but will balloon to close to $100 billion in 2023-24. But it’s OK because all that spending will produce overpriced, half-finished infrastructure as well as whacky programs such as handing out restaurant and accommodation vouchers.
Having said all this, Australia hasn’t been Robinson Crusoe. Newly elected US President Joe Biden managed to push his completely over-the-top $US 1.9 trillion Covid ‘stimulus’ package through Congress. The package hands out $1,400 to most adults and there are hundreds of millions in dollars given to green policies – read green rent-seekers – and to the states and local authorities. It was heart-warming to see Las Vegas rocking again on the basis of people spending their government handouts. Just think of the multiplier effect!
When even a lefty economist like Professor Larry Summers questions both the size and the nature of the package, you know there’s something very wrong. The obvious point he makes – that the quality of most of the spending is highly dubious – is one that most of the US media simply refuse to admit.
Let’s not forget that at least all Republican senators voted against the package. That’s more than can be said for any of the lily-livered oppositions in Australia. Ah, the land where spending other people’s money is the new black. (Can I say that?)
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