Scott Morrison’s Right-Wing Government Wants to Scrap Austerity — But Only for the Rich

Scott Morrison, Australia's conservative premier, is selling his 2021 budget as a job-creation package. But in reality, it's a miserly budget — except when it comes to handouts for business and the wealthy.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg at Parliament House in Canberra, Australia. (Sam Mooy / Getty Images)

“Jobs are back,” Australia’s treasurer Josh Frydenberg told journalists at a press conference on Tuesday, just before handing down this year’s budget. The Australian media have mostly lapped it up, taking at face value Frydenberg’s assertion that this budget will create jobs.

The announcements that have dominated the headlines revolve around some major commitments. Frydenberg is offering billions in tax cuts to businesses and households, and high-profile spending boosts to aged care, disability and mental health services, and childcare.

Frydenberg has put a positive spin on Australia’s economic situation. The country’s isolated geographical position and strict public health measures helped keep COVID-19 largely at bay. While there was still significant disruption to the Australian economy in 2020, it endured one of the shallowest recessions of any industrialized nation and has now experienced one of the quickest recoveries.

Employment is above pre-pandemic levels, with the unemployment rate down to 5.5 percent and falling. GDP is forecast to grow by more than 4 percent in real terms. The budget deficit is $161 billion this year, or roughly 8 percent of GDP. According to the treasury, by 2024–25 it will still be $57 billion, or 2.4 percent of GDP.

Pundits are telling us that austerity has come to an end. After years of strident rhetoric about the need to eliminate deficits, the Coalition no longer seems to care about public debt. Frydenberg and Finance Minister Simon Birmingham are championing the budget’s social spending pledges and freely conceding that the government should postpone the task of “fiscal repair” until sunnier times have arrived. But a close look at the details of the budget tells a very different story.

Window Dressing and Wage Stagnation

At first glance, it may look impressive for the government to invest $18 billion over five years into aged care. However, roughly half of those funds will be needed simply to undo cumulative cuts of about $10 billion that the Coalition has made to aged care since taking office. The spending boost for the National Disability Insurance Scheme (NDIS) will merely cover planned growth in servicing that was supposed to be part of the NDIS from its inception.

A spending commitment of nearly $4 billion for women’s economic security is welcome, particularly when it means increased subsidies to families for childcare. But it’s still hardly transformative. As Alison Pennington has pointed out, the Coalition’s spending package aimed at women is short-term and time limited. Tax cuts for high-income earners, on the other hand — most of whom are men — will be permanent.

Overall, with the JobKeeper scheme due to be wound down, federal government spending will actually fall over the next fiscal year. The budget predicts that unemployment will slowly fall to 4.5 percent. Over the medium term, its forecasts envisage a slow and grinding recovery after stimulus spending winds down.

In the short term, the afterglow from the enormous JobKeeper stimulus of 2020 will spur economic growth of more than 4 percent and employment growth of 6.5 percent. However, once the stimulus wears off, economic growth will stall at a level below 2.5 percent, while employment growth will drop to 1.25 percent. This is a V-shaped economy, followed by a flat line.

Considering how big the stimulus expenditure was last year — over $300 billion, or more than one-seventh of Australia’s GDP — it seems desperately modest to aspire to an unemployment rate of 4.5 percent in three years’ time. Even the notoriously hawkish officials at the Reserve Bank of Australia no longer believe that an unemployment rate of 5 percent should be considered “full employment.”

The Australian Treasury has also recently revived its model of the so-called NAIRU (“non-accelerating inflation rate of unemployment”). The NAIRU has long been a touchstone for free-market economists who insist that the economy “needs” a certain level of unemployment to hold down wage growth and prevent inflation. According to the Treasury’s forecasts, the fall in unemployment it envisages will have little or no impact on wages, which are set to remain stuck in first gear. In fact, the Treasury actually expects wages to fall in real terms over the next decade.

Australian economic forecasts, 2020–25. (Source: Australian Government Budget Papers)

Handouts for Billionaires, Cuts for Enemies

These mediocre predictions are still based on some heroic assumptions, such as the idea that all Australians will have been vaccinated for COVID-19 by the end of 2021, even though the country’s vaccination rollout has been one of the slowest in the industrialized world. The government missed its target of vaccinating four million citizens by April by a whopping three million. Afterward, it abandoned setting vaccination targets at all.

The budget papers also forecast that international borders are likely to stay closed until mid-2022. That will worry people in the tourism and higher education sectors, not to mention millions who are anxious to see family members overseas.

Following in the footsteps of last year’s budget, this package includes all sorts of handouts to business. The Coalition has extended the “instant asset write-off” and the “loss carry-back” provisions. The first of these measures gives businesses a tax deduction for buying gear like utility vehicles and computers. The second offers a tax refund for profits they made back in 2018–19 — free money, in effect.

Meanwhile, the Coalition has ignored sectors that it doesn’t approve of, or even punished them. There is nothing in the budget for the environment, and no spending to address climate change. The universities face a 9 percent cut in funding spread out over several years. Scott Morrison’s government sees universities as hostile ideological territory, and it has treated the sector accordingly. In 2020, universities shed around seventeen thousand high-wage, high-skill jobs; this budget will make thousands more vulnerable in 2021.

The political economy underpinning this budget is shrewd. Frydenberg realizes that consumer confidence is rebounding strongly as Australia emerges from the pandemic doldrums. Record low interest rates, consumers with nowhere to spend their savings, and the huge stimulus measures of last year have sparked another manic surge in Australia’s housing market. House prices have shot up in 2021, rising by double digits in most capital cities.

That’s great news if you own a house already — as many people in the Coalition’s voting base do. It’s also great for housing construction. Tax cuts to small businesses also favor Liberal voting groups such as white, male tradesmen.

Throw in the extra social spending and this looks like an election budget. Having discarded its doom-laden rhetoric about “debt and deficit disasters,” the Coalition has decided to offer some a Keynesian spending boost to its friends and supporters.

Labor predictably botched its response to the budget, falling right into the Coalition’s trap. Party spokesmen criticized the government for engaging in deficit spending — something that many Labor voters clearly support.

The party still seems to be stuck in the past, spooked by criticism it faced for stimulus spending when it was in government during the financial crisis. While Labor is preoccupied with fighting old battles, the Coalition is moving into new territory to solidify its base.