Federal Budget 2021: Designed to support the economy

By Stephen Bartos

Tuesday May 11, 2021


This is a big spending budget, designed to support the economy and stimulate employment. Public service staffing and expenses reflect the theme.

Average staffing levels are estimated to grow by 5,364 over 2021-22, from 168,912 to 174,276. This represents more than 8% growth, double the rate for the economy overall.

Every portfolio except social services has growth in staff numbers. Some of the larger ones are the departments of health (+498) and home affairs (+497), but across the board most departments and agencies are estimated to grow staffing levels.

This is pretty much as foreshadowed by the treasurer prior to budget night. He indicated an intention to continue government spending to support economic growth in the face of the impact of COVID-19.

His aim is summed up in the slogan ‘securing Australia’s recovery’ on the cover of each of the budget ‘glossies’, the supporting booklets circulated in the budget lockup.

These booklets include snappy slogans, short descriptions, pictures and graphs aimed at selling key messages. They aren’t official budget documents but can be more revealing of a government’s intentions than the rather drier prose of the statements prepared by the departments of treasury and finance.

What they tell us is that the government intends with this budget to provide almost everyone with some kind of benefit, whether in tax cuts or spending assistance. The proximity of the next federal election, due this financial year, may have something to do with it. But as outlined in a budget preview article for Crikey, this is a happy accident: spending is desirable right now.

Some of this new spending is directly due to the pandemic: for example, $1.9 billion over five years to purchase and administer vaccines. Note that this measure is not based on an assumption that the pandemic will remain acute for that long, most of the spending is in 2021-22.

There is also an undisclosed amount for future purchases of the Pfizer vaccine, $487 million to expand quarantine in the northern territory, and $271 million added to the COVID-19 national response partnership with states and territories. With this, there may well be an element of states and territories extracting a return for taking on more of the load of the vaccine rollout:  you would expect them to do that, behind closed doors.

Although the prices we pay are likely to be inflated by circumstances, this is an important area of spending. It is a worthwhile investment in the future. Our standard of living is directly affected by how well we can manage to stay largely free of COVID-19.

This is however only one of many packages. Increased spending is everywhere, from the earliest years ($1.7 billion over five years for childcare, already announced, and $1.6 billion over four years for pre-school) through to aged care ($17.7 billion over five years in response to the royal commission on aged care quality and safety) and a variety of programs for ages in between. There’s bucketloads of new funding for roads, aviation, job training, mental health, women’s safety and much else besides.

There are almost no saving measures – the only significant one is an increase in the heavy vehicle road user charge.

Thus, for most public servants this budget means business as usual. A few lucky ones have the bonus of being given new programs or policies to implement. That is not without risk – you don’t want to be the one blamed when an announced new policy goes wrong – but mostly brings with it opportunities including interesting work and opportunities to win friends and favour.

Most agencies gain additional funding in this budget – even the Australian national audit office, which has revealed many failings within government including the notorious sports rorts, receives a budget increase. The only public sector bodies that are obviously neglected are those that found themselves on the wrong side of the culture wars in the Howard years: the ABC and public universities.

This is a very political budget – aiming for wide appeal to almost everyone, but especially targeted at any liberal or national voter who might have been tempted to switch at the next election.

What is less clear is the underlying economic strategy. In that regard this is a very peculiar budget.

It is definitely not Keynesian – the idea that a government should spend more in a downturn, to ameliorate its negative impacts, and save when the economy is growing.

As the treasurer points out, our economy is doing well: “rebounding at the fastest pace on record over the second half of 2020”. Unemployment is falling.  The documents note, with pride, this budget is on track to get it sustainably below 5 per cent, and that’s happened only once since the early 1970s.

So the increased spending is actually pro-cyclical – taking an economy that is growing and stimulating it to grow even more.

A not yet mainstream idea, modern monetary theory  (MMT), would not be fazed by this. It holds that debt is not a constraint on governments, as they can never default, and the aim should be to get unemployment down as far as possible consistent with inflation targets. There is a hint of this in budget statement four: “there is a greater role for fiscal policy to drive unemployment down further to generate increases in wage growth and inflation, without generating excessive inflation” (BP1, Statement 4, page 124).

In a practical sense, this budget is a good test of MMT. If, as the budget papers predict, it leads to improved employment, together with practical benefits such as better aged care and mental health, then there is a good argument for abandoning altogether the idea that debt and deficits should be avoided.

So far, there is nothing near an explicit government strategy to this effect. There is something appealing to governments about the homespun wisdom that you should try to pay off debt and live within your means. The enduring lesson from the pandemic budgets is that this accepted wisdom should be reconsidered.

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