Now we know when the election will be held: In March.
Well we don’t know for sure, of course, but after Thursday’s MYEFO [Mid-Year Economic and Fiscal Outlook] there’s no need for a pre-election budget in April followed by an election in May, a repeat of 2019 and the common assumption for 2022 up to now.
Thursday’s MYEFO was the election budget you have when you don’t have an election budget.
Federal budgets are no longer the announcement platforms they used to be – everything is pre-announced these days, so there’s no need for a budget to unveil election goodies.
And this time there’s also no need for another budget to find more cash: Last week’s MYEFO contained the biggest budget hollow log in history, with $16 billion worth of “decisions taken but not yet announced” (DTBNYA) over the next four years, ready to be announced during the campaign.
Also, another $175 million has been stashed in community grant programs, ready to be doled out to clubs in deserving Coalition and marginal electorates.
That $16 billion in DTBNYA in the MYEFO is twice the $8.3 billion buried in the 2021 budget seven months ago and $10 billion more than the same line in the 2020 budget.
The 2019 pre-election budget, brought down in April ahead of the May election, contained just $1.4 billion in DTBNYA and in the budget before the 2016 election, signed by then Treasurer Scott Morrison.
It was actually a negative number because the decisions taken for four years hence – 2019-20 – but not yet announced, involved spending cuts of $1.98 billion (which everyone had forgotten about by then, of course).
So Josh Frydenberg’s $16 billion stashed in a hollow log for the 2022 campaign is a new high watermark in hollow logs, setting a new standard for non-transparent budgeting, and it means there is absolutely no need for another budget before the election to find more money.
The other reason for having the 2022-23 budget after the election rather than before it is that budget repair will have to start straight away to set up for the election after that.
To have any fiscal credibility or firepower for cash promises in 2025, a returned LNP government would need to start cutting spending next year; leaving it another year would be too long.
With the Coalition’s addiction to tax cuts and its need to present as the better economic managers, the $84.5 billion deficit now proposed for 2023-24 and the $1.2 trillion in debt forecast for 2024-25 cannot stand.
Therefore first thing the Morrison government will do if re-elected is bring down a slashing, horror budget, cutting government spending beyond anything foreshadowed during the election campaign, starting with an attack on the NDIS, in the hope that by 2025 the pain and fury is forgotten in the warm glow of more tax cuts and more grants in targeted electorates.
In fact, last week the Treasurer refused to rule out announcing more tax cuts, and made the unsurprising prediction that tax was going to be a key battleground in the election.
And while it’s true that the tax increases proposed in 2019 by Bill Shorten to pay for his campaign promises will be worn by Anthony Albanese like a Post-It note on his forehead during this campaign, he at least has historical truth on his side.
Since the election of the Whitlam government in 1972, the average tax to gross domestic product ratio during three Labor governments was 20.4 per cent while during the three terms of Coalition government it’s been 22.4 per cent.
In other words, Australia’s highest-taxing party is the LNP, quite comfortably.
The Coalition has long said it will maintain the discipline of keeping the ratio of tax to GDP below 23.9 per cent, as a sort of talisman, but when you’re running deficits of 2 to 4 per cent of GDP, it’s meaningless.
They’re simply substituting enough of the tax revenue with bonds to keep the tax to GDP ratio below an arbitrary number.
Last week’s MYEFO statement forecast tax to GDP percentages over the next four years of 22.3, 21.4, 21.8 and 22.1.
But if you add the forecast deficits to the taxation receipts numbers you get 26.8, 25.8, 25.4 and 24.5 as the percentages of tax to GDP.
To be clear: The only reason the Coalition is able to say that it’s keeping the taxation to GDP ratio below 23.9 per cent is because it is running huge deficits.
It is budgeting to finance an average of 4 per cent government spending with bonds rather than tax.
Maybe it can get away with that in the 2022 campaign because we’ll still be in pandemic emergency mode, and inclined to forgive deficits, but it won’t be able to do it in 2025 and retain any fiscal credibility – unless of course it persuades the nation on the merits of Modern Monetary Theory, and that deficits don’t matter. Unlikely.
That means there have to be spending cuts or tax increases, but presumably not the latter because lower taxation is what supposedly distinguishes it from Labor, although, as discussed, it doesn’t.
That’s why next year’s budget will have to be brought down after the election rather than before it: They’ll have to get started on the spending and welfare cuts early, and such budgets are always best in the first term, just after an election.
Alan Kohler writes twice a week for The New Daily. He is also editor in chief of Eureka Report and finance presenter on ABC news