Department heads give worst economic report ever after eight years of coalition

The heads of the Treasury and the Department of Finance have just released the most pessimistic pre-election economic and fiscal outlook report since PEFOs have existed, as reported by Alan Austin.

LAST WEEK’S official assessment of the health of Australia’s economy points to a continuation of the worst performance on record on virtually every major indicator. Had this been published with Labor in power, the screaming headlines would demand the immediate sacking of the incompetent regime. The tabloids would urge readers to take to the streets with fiery pitchforks and brands.

The longest series of deficits

Twelve years ago, after a single Labor deficit of $27.0 billion, coalition parties and the media fought a fierce campaign to overthrow the Gillard government in the 2010 election.

Opposition Leader Tony Abbott was scathing about this lone deficit and associated debt – despite both saving Australia from recession during the Global Financial Crisis (GFC):

“We will take the high road to spending-cutting surplus, so that our surplus will be achieved with the government’s share of the economy smaller than it would be under Labour.”

The Coalition’s nine budgets since then have delivered the opposite. All have been in deep deficit, and others are expected to follow indefinitely. The bottom three were $85.3 billion, $134.2 billion, and $79.8 billion. The next three are projected at $78.0 billion, $56.5 billion and $47.1 billion. The average of these six is ​​negative $80.1 billion.

By contrast, the average of Labor’s six budget results was just negative at $28.6 billion.

The big difference, of course, is that only two of the Coalition’s eight years have been affected by the COVID-19 recession. Five of the six years of labor were affected by the much more severe GFC.

Unnecessary expenses

Tony Abbott swore in 2010 that:

“Under the Coalition, spending will always be less and taxes will always be lower than under Labour.”

The diametrical opposite has happened. Labor’s highest spending was 25.9% of gross domestic product (GDP) in 2010, at the trough of the GFC. Last week’s PEFO shows Coalition spending over the past two years was 27.7% and 31.6% of GDP. The next three years are forecast at 27.8%, 27.2% and 27.1%.

Still high taxes

The tax-to-GDP ratio will continue at historic highs in forward estimates. The Treasury and Finance estimate that the average for the next five years will be 22.6% of GDP. That compares to the Labor Party’s five-year average of 20.8%.

Budget Comparison — Workers Care and Liberals Spend

Explosion of public debt

In 2010, the Coalition promised a debt reduction task force “To get to the bottom of Labor waste” and to “begin to pay down Australia’s $90 billion debt”.

Yes, 90 billion dollars. It was the gross debt for which the Coalition and the media condemned Labor in 2010.

PEFO shows gross debt last year was $817 billion, or 39.5% of GDP. This amount is expected to increase every year for at least the next five years, peaking at $1.169 billion, despite the strength of the global economy. That’s 13 times the modest Labor Party debt that the cowardly media was so outraged about in 2010.

Debt in the global context

Throughout Labor’s tenure, public debt has been among the three or four lowest among developed OECD countries. See the blue chart below.

(Chart provided)

Australia’s global standing has deteriorated disastrously since the 2013 election. The latest data from the International Monetary Fund shows that Australia now ranks 19th. See the pink chart below.

(Chart provided)

Only three developed countries have seen their debt explode by more than 35% over the past decade: Greece, Australia and Costa Rica. See the green chart below.

When Scott Morrison says Australia leads the world, as he does every day, he means Australia leads Costa Rica.

(Chart provided)

Wages continue to be lost

The gap between wage growth and inflation has been wider in the past year than at any time since the recession of the early 2000s. PEFO offers no prospect of recovering workers’ lost income . He predicts inflation of 4.25% for this fiscal year, with wages rising by only 2.75%. Next year’s inflation is expected to be 3.0%, with wage increases of 3.25%, not nearly enough to recoup recent losses.

Participation in employment

Currently far too high at 66.4%, it should remain at an unacceptable level indefinitely. No relief is in sight for people in their 70s and 80s who cannot survive on their pensions and have been forced back to work.

Pressure will also continue on young Australians from poor families to leave school early and find jobs, or join the jobless queue, instead of going to university.

Future risks

The PEFO lists a worrying number of ‘key risks and uncertainties’. These include the continuation of the pandemic, health developments in China endangering global trade, the Russian-Ukrainian conflict and rising inflation.

Although the Coalition is not the cause, its poor record in dealing with past external threats is troubling.

Forget the debts!  Budget Confirms Morrison Govt Doesn't Care About Deficits

PEFO highlights a danger directly attributable to Coalition Ministers — loans to private industry. These include $1.25 billion to mining company Iluka Resources.

PEFO notes:

“The financial implications of these loans should not be disclosed and the tax impacts of the loan to Iluka are not reflected in budget estimates to protect commercial sensitivities.”

Conclusion: net worth destined to deteriorate indefinitely

When this government took office in September 2013, net worth – government assets minus liabilities – was negative $205.9 billion. This amount was up from negative $263.8 billion in September 2012 and the 2013 PEFO predicted that it would soon return to positive values.

It has since fallen disastrously. This week’s PEFO estimates it will be negative $595.3 billion in June this year and then deteriorate each year thereafter until reaching negative $778.9 billion in 2026.

The message

Under this administration, Australia’s wealth and revenues are being wasted at an unprecedented rate, while overseas corporations reap ever-increasing profits and pay little or no tax.

The message of this PEFO is loud and clear – the Coalition simply cannot handle the economy.

Alan Austin is an Australian freelance columnist and freelance journalist. You can follow him on Twitter @alanaustin001.

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