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The Budget: bleeding stopped, patient’s condition still serious

In memoriam: This is the 200th CTU Economic Bulletin. It was founded by my predecessor, Peter Conway, CTU economist and then CTU Secretary, who wrote the first 101 issues. He died just three years ago, on 9 June 2015. We still miss his wisdom, values, activism, music and friendship.

The 2018 Budget was a “stop the bleeding” Budget. Many services received funding to cover rising costs for the first time in many years. But the body of public services is still in dire straits: while the bleeding may have stopped, we still have to get the patient well again.

The highlights of the Budget were clearly in Health and Housing. That is not to forget the Families Package to reduce poverty and inequality which had been announced in advance.

To take Health as an example, this is the first Budget I have attended since 2010 where funding has been adequate to meet rising costs and population pressures since the previous year, as well as paying for politicians’ promises. It reduced doctors’ fees for an estimated 540,000 people with low incomes, and extended free visits to 13 year olds – but it did not provide pay settlements and pay equity claims nor the increasingly desperate staffing needs. It needs around $2 billion to restore funding to 2010 levels in real terms.

That is the story throughout this Budget: it set a direction, but took just a step along the way. Even good starts in education, housing and the Families Package leave enormous gaps to fill.

There are growing structural surpluses which could boost services and income support. The main immediate barrier is unwillingness to make use of the available revenue: the Budget Responsibility Rules which limit spending and debt. Yet our net debt levels are far from our greatest worry, especially taking account of the rapidly growing Superannuation Fund.

The Government is planning to take a “wellbeing” approach to next year’s Budget, weighing up not only the finances of the Government and the health of the economy but also people’s skills, knowledge and health; trust, culture and fairness; and preserving the environment. If we applied a wellbeing framework, I have no doubt that the dangers to our wellbeing would far outweigh the risks in say a net debt target, including the Super Fund, of 10 percent of GDP.

I calculate that we could deliver further funding, rising over four years to $5 billion per year, to Health, Education and other strapped public services, on top of rising costs; raise benefits by 30 percent; and index Working for Families to wages, by relaxing the debt and spending limits and raising around $3 billion in additional revenue from taxation starting in the year to June 2021. But this would break the Government’s Budget Responsibility Rules.

The Government is heading in the right direction. It now needs to demonstrate the urgency that the situation demands.

Download the full bulletin: CTU Economic Bulletin 200 – May 2018