Times they are a’changin’ when an $80 billion deficit doesn’t raise eyebrows

The issue in a nutshell

The most recent budget forecasts a decade of budget deficits with unfunded spending permanently higher than in the past 30 years.

Why is it an issue?

Since the pandemic, federal spending has increased to a long-term average of 26-27% of GDP. The 2022 budget papers predict a decade of spending at those levels, while government receipts will never top 26%, leaving budget deficits well into the 2030s on top of existing debt.

What the parties say

After once boasting of being “back in black”, the Coalition now says Australia’s massive debt is affordable because it will shrink as a proportion of GDP over time. Labor says the Coalition’s wasteful spending must stop, but otherwise offers no commitment to increasing taxes or reducing spending that differs from the Coalition. Labor’s previous commitments to improving the efficiency of taxes and removing damaging concessions like negative gearing have been abandoned after Coalition scare campaigns in 2019.

Discussion

After two elections in which it committed to tax reform, Labor has ditched its politically dangerous agenda of ending rorts and heavily abused tax concessions — just at the moment when lifting tax revenue fairly is needed more than ever.

The Coalition has permanently increased the size of the federal government spending to over 26% — a level once reserved for economic crises — while our tax base remains at Howard-era levels of 23% or less. The result is a persistent gap between spending and receipts that will not be closed within the current long-term forecast for the budget. Even with a windfall from surging commodity prices, the government is still promising a substantial budget deficit of $80 billion this year — the kind of level that before the pandemic would have panicked politicians and sent economists hysterical. Such is the change in the political environment, it’s now barely even an election issue.