Economics and finance, Government and governance | Australia

9 March 2015

John Hewson writes that the next Australian budget should play to the country’s strengths in medical and scientific research.

The task of framing the next Budget, due to be brought down in May, seems to be getting harder by the day.

The Government burned most of its political capital with the last Budget, and has difficulties attempting to gain support for key measures from the Opposition and the crossbenchers in the Senate. Additionally, the economy is turning out to be much weaker than they predicted at the time of the last Budget.

They have also now backed off the co-payment for doctor visits, which should cost about $1 billion over the Budget forecast period, plus the concessions on defence pay, that will cost about $200m annually.

This is further compounded by a slower world economy, weaker commodity prices, and the overlay of some serious, and unpredictable, geo-political tensions.

The biggest global risk is that the US Federal Reserve starts to raise US interest rates, now that it has completed its policy of quantitative easing. That policy flooded the world with liquidity, which will be reversed as interest rates rise.

The outcome could be a stock market and bond market shake out with considerable currency instability. The Australian dollar could fall dramatically as the US dollar strengthens in such a scenario. None of this would be good for our economy, overall.

Unfortunately, none of this would actually be reflected in the Budget figuring, although Treasury would be at pains to convince us that they had recognised the significance of these risks.

Clearly, in the last several Budgets they have missed the revenue forecasts simply because they hadn’t adequately taken account of these risks, and the terms of trade had deteriorated faster than they had predicted.

The forthcoming Budget provides the opportunity for the Government to, not only save Prime Minister Tony Abbott’s skin, but also to provide the over-arching narrative as to how they see our economy transitioning from one based on a resources boom, to what?

But, what will they do?

Last week, in response to the release of the disappointing growth numbers, Treasurer Hockey staked his claim on three policy areas: the family package, small business, and more infrastructure.

I imagine he will need to spend money in all three areas if these initiatives are hoping for electoral support.

Which, of course, begs the question as to how he will fund these initiatives, ‘Where’s the money coming from?’

What else will be cut? What tax/charges will be increased?

I imagine the family package will be focused on childcare. I guess that the small business package will promise a lower tax rate for small business. I guess they will simply promise to fund ‘more infrastructure’, even though it is not yet fully funded.

The Abbott Government has virtually zero capacity to run on their political capital, and a number of vested interest groups are already claiming victory as ‘the best government their money can buy’.

It is time for them all to stand up and be counted!

Why don’t they play to our strengths? We are at the cutting edge of what we might call ‘brain-based’ industries, especially in medical and scientific research.

There could be a technological revolution as a result of a sensible response to the challenge of climate change.

It is underway. We can’t afford to miss it!

This piece was first published in Southern Highland News:

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