Australia has enough wealth to go around. We just need to organise it better and share it fairly.
It’s budget time and Australians are once again being treated to the spectacle of a clash between two approaches to the collection and use of the nation’s finances. One approach is to assume the federal budget must be balanced and policy choices for this purpose are typified by the Grattan Institute which has released a “Back in Black” report containing its “menu of suggestions to repair the budget” – as though a balanced budget is the primary aim of a government and the welfare of the people is subordinate to and limited by that.
The other approach is to assume that the nation’s finances should be put to the uses preferred by Australians and for that purpose the appropriate amount of national income should be raised fairly and shared fairly. This latter approach makes balancing the budget, if not a completely irrelevant consideration, at least a secondary one, as it should be.
We might assume the government thinks it should be secondary because Anthony Albanese has stood on stage and said he wants “an economy that works for people not the other way around”. But beyond that we could expect that millions of Australians think their fair access to taxpayer funds for services, health, housing, education, and essentials such as food, transport and environmental sustainability is the primary consideration. Whether the federal budget balances in any one year or even over the longer term is quite irrelevant to those who do not have the necessary access to all that they need to live a dignified life. Nor are many Australians convinced that disadvantage and poverty is even necessary, given that they have seen how easily it was staved off during the Covid-19 pandemic by hundreds of billions of dollars in fiscal stimulus and the use of “eye-watering” amounts of government debt. They have seen that the sky did not fall when the government came to our aid. The economy did not crash. On the contrary it was held up by that aid, just as it was in the GFC.
These experiences have taken the veil off the eyes of many Australians inasmuch as it has become apparent that Australia is easily wealthy enough – financially and in natural resources – to ensure that everyone can lead a life of dignity. And despite the scepticism of those insisting that our budget must be balanced, the plain fact is that we have all the financial means we need. We are nowhere near the point of living beyond our means – at least financially. This gives substance to the Keynesian assertion that “anything we can do we can afford”.
And therein lies the key to our problem. In Australia our problem is not a lack of money – it is a lack of capacity to organise ourselves to create the programs for spending that money well. Our peculiar problem in providing a decent quality of life for all is not that we can’t afford it, it’s that we can’t “do” it due to a lack of human capacity and organisational skills. And we are making that problem worse by cutting spending on the very things we need most – health, education, housing, biodiversity protection and climate change mitigation. This leads to a deficit of human capital and that is the deficit we should be worried about, not the one that arises from loans we have given ourselves in recent crises.
A federal budget deficit is not something to be frightened of and certainly not so frightened that we make everything worse by spending less on ourselves than we need to. A federal budget deficit is nothing more than an accounting entry that has been made by choice to compensate for failure in the private sector part of the economy to deliver the minimum quality of life that we need. In a country like Australia that has full sovereignty to issue its own currency and to use a massive federal budget to compensate for both private sector deficits and surpluses, a federal budget deficit is not something that of itself causes disadvantage. It is not something that federal governments need to worry about in times like these where more and more people are plummeting into poverty, hunger, homelessness, and ill-health and where more of our human capital is being depleted by a refusal to provide full access to affordable education for everyone.
And yet this is precisely what the government is worrying about. Rather than opening itself up to dialogue with Australians to give them a choice on how they shall attain a decent quality of life for all, it is making a choice for them that they shall not have access to or even hope of that. Nowhere is this more evident than in the current proposals for the Housing Australia Future Fund (HAFF) where the government is attempting to imply that if it takes a loan of $10 billion and invests it on the money market, the interest earned will exceed the interest they must pay and enough will be left over to spend up to $500 million a year creating new housing. This might sound like a reasonable bet were it not for the scale of the housing crisis which, as the Guardian pointed out last year, now shows a public housing waiting list of 163,508 households. In April 2022 the figures from the ABS suggested that, on average, building a home costs around $473,000 (including houses and unit data). There is no guarantee under the HAFF that the government will spend the HAFF earnings at all on housing but even if it does, this would imply that over ten years with inflation the government would be able to fund the creation of only about 7,500 new homes. At most in the first year they might fund about 1,200 which means it’s obvious that even if they did that every year it would take 136 years to close the current backlog. The HAFF is therefore not a serious proposal which puts Australians first.
The Greens have suggested that at least $5 billion a year should be allocated as direct investment by the government to create social and affordable housing given the enormity of the housing crisis. Anthony Albanese has derided this as “pixie dust” – presumably intending to imply that it’s an airy fairy policy that won’t solve the problem. But surely it is the HAFF that is the pixie dust. It won’t touch the sides of our housing crisis. Direct investment of $5 billion a year, however, would halve the backlog in about eight years. After ten years, instead of still owing the borrowed $10 billion under the HAFF, the nation will have created housing assets likely to be worth at least 25% more than they cost and which will have earned them around $12 billion in rental income. And that’s just the start of the extraordinary return taxpayers can enjoy by investing directly in housing.
The $5 billion per annum can easily be funded by halving the fossil fuel subsidy. As such it need not hit the budget bottom line at all. But the Albanese government seems intent on saddling Australians with a housing crisis by implying we can’t afford to ensure everyone has a home. Jim Chalmers asserts that “we can’t fund every good idea”. But the fact is we want to and we can.
The Grattan Institute’s Danielle Wood has asserted that
when it comes to paying for government services, Australia has a bad case of cognitive dissonance. We want more and better services, but we are less happy to foot the bill for them.
But it’s the government that has the bad case of cognitive dissonance, not the people of Australia. If Mr Albanese really wants an economy that works for people, then he must design a budget for that purpose. The HAFF proposals actually make both the budget balance and the economy worse over the long run. It’s time to take the focus off budget repair and do as he suggested he would – repair the mess made by not investing in Australians.