Rudd budget won’t shield us from recession

Rudd tried to dress up his first recession budget by announcing a small increase in the aged pension and more money for building infrastructure. But underneath that plenty of the handouts for the rich were maintained, and the unemployed—who will suffer worst from the recession—were ignored.
The introduction of paid parental leave of up to 18 weeks was announced with much fanfare, but the government will not introduce it until 2011, after the next election.
The hardline economic rationalists in the Liberal party attacked the budget for the size of the deficit—$57 billion this year. But for all the talk of the government’s “big spending”, the deficit is much smaller than many other developed economies. The budget forecasts a deficit of 4.9 per cent of GDP over the next year. The US deficit will be almost three times larger—12.9 per cent of GDP.
Given we face the most serious economic crisis since the Great Depression, the government could be doing much more through spending to guarantee jobs. The budget papers estimate unemployment will reach 8.5 per cent next year, or one million people, despite the government’s spending measures.
The only new stimulus measures were $22 billion for infrastructure spending, but less than $2 billion over the next year. The government claims this is aimed at targeting jobs. But in total, this amounts to only 40,000 jobs. At a cost of over $500,000 per job created, this is poorly directed. Too much of the spending will be creamed off in profits for construction companies.
The chance to use such a huge amount of money to seriously fund renewable energy power stations was missed—with the amount of spending on roads and clean coal combined over four times the money spent on solar energy.

Positive moves included the increases to pensions for the elderly, carers and those on disability support. But to pay for it the government will phase in an increase in the retirement age to 67. Anyone aged 52 or less will have to work an extra two years before they can access the aged pension.
Unions have condemned the increase in pension age. Construction union president John Sutton said, “Many of our members left school at age 15 or 16. By the time you reach 65 you’ve basically done about 50 years in hard physical labour.”
Disgracefully, there was nothing for the unemployed or sole parents. With hundreds of thousands more people expected to join the dole queues by the end of next year, refusing to raise the unemployment Newstart allowance is a disgrace. Single people on unemployment benefits will continue to scrape by with just $226 a week—well below the poverty line.
At the same time as trying to stimulate the economy by increasing spending, the government—with one eye already on reducing future deficits—announced a raft of savings measures.
This has the effect of partially undoing the benefit of the stimulus measures. As Ross Gittins wrote in the Sydney Morning Herald “It’s as though we’re planning the clean-up after the cyclone, even before the cyclone’s hit.”

Worryingly, the government is already marking out its strategy to get the budget back into surplus—which will likely mean serious cuts down the track.
It is relying on a rapid rebound from the recession within two years to replenish government coffers. When that happens it says it will keep real spending growth at just 2 per cent a year. According to The Australian’s Paul Kelly this is “a feat no previous government has delivered on a sustained basis”.
There are good reasons to believe that growth will not recover as quickly as Treasury predicts in which case future cuts will be even harsher.
Rudd tried to spin his budget savings as an attack on “middle class welfare”—the Howard-era handouts for the rich.
There were some cuts—the private health insurance rebate will now be means-tested, so that high-income earners get less or no rebate. But the government failed to do what is really necessary and scrap the rebate entirely to put the additional $2 billion the rebate will still cost every year into the public hospital system.
The government also stuck with tax cuts promised at the election that favour those earning over $120,000 a year. They will get an annual tax cut of $950 compared to just $300 for those earning between $40,000 and $60,000.
To protect the workers and the poor who will bear the brunt of the recession, Rudd will have to do a lot better than this.
By James Supple


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