Politicians and Budgets

Hockey Budget SpeechIt’s hard not to be cynical when it comes to our politicians. For many of us it comes down to a matter of trust but in reality the job of a politician is often about delivering bad news in a polite way, almost devoid of the truth. How novel it would be if they could engage with us in an open and frank manner. Unfortunately, the reality of the situation is that it often takes a crisis before any constructive dialogue takes place.

When Treasurer Joe Hockey handed down this year’s Federal Budget, the outcomes were never going to be pretty. Some would have you believe that Australia has no fiscal problem, that our budget position is strong and sound and that the changes now sought are both wrong and unfair. In fact, they go further, pushing the case for more assistance for those who are unable to help themselves. But who should pick up the tab?

Politicians are of course the masters of spin. They are not like the individuals, families and businesses they are meant to represent. Whilst they may be elected by the people they fail the litmus test, for in short, they are not accountable for their actions. It is a failure of our political system that we can entrust such important responsibilities to those with so little to lose.

To be fair, in the past Australia has benefited from politicians that have made a difference in setting policies with long term legacies. Hawke and Keating, certainly in their earlier years, lifted our country with ambitious structural reform. Howard continued that reform and along with Costello maintained fiscal discipline.

In contrast, the legacies left by Rudd, Gillard and Swan have come with an almighty sting. Years of spending more than the taxes they collected have finally caught up with our government. For some there is acceptance that changes are necessary, yet many still cling to the belief that everything will be fine. Unfortunately, this is not the case and the tough decisions being made now are both necessary and long overdue.

When Hockey handed down the 2014-15 Federal Budget he forecast deficits as far as the eye could see. In 2014 this figure was $49.9 billion, followed by estimated deficits of $29.8 billion, $17.1 billion, $10.6 billion and $2.8 billion in the forward years. In total, deficits of $110.1 billion. While the estimated deficits are smaller in size, these are only possible if unpopular changes are made, involving more taxes, fewer political handouts and an acceptance by the public to accept less today in order to deliver a more sustainable government.

In the long run there is no escaping the fact that budgets need to balance, yet some have approached this task ignorant of the consequences. Former Treasurer Swan was a master of avoiding economic reality as the following Budget speeches now expose.

1. Budget 2010-11
“A strategy that will see the budget return to surplus three years ahead of schedule, and ahead of every major advanced economy.”

2. Budget 2011-12
“We are on track for a surplus in 2012-13, on time, as promised.”

3. Budget 2012-13
” The four years of surpluses I announce tonight are a powerful endorsement of the strength of our economy, resilience of our people and success of our policies.”

In fact, Swan presided over cumulative deficits totalling $112 billion over the years 2010-2013, with a further $115 billion of deficits forecast over the period 2013-2016.

Where is the accountability, where is the honesty and where is the integrity?

Why does it matter that we return to a position of surplus? Simply, in the long run things catch up with you, so it is important to have a realistic game plan that acknowledges the issues, working sensibly to execute to an end goal.

If we were to hone in on only one item in the Budget this would be it. In 2008 the nation had a net cash surplus of $44.8 billion. By the end of 2012 this had become a net debt position totalling $147.3 billion. In the current year this figure is forecast to rise to $197 billion and over the forward estimates, even assuming Hockey gets his way with his proposed Budget, net debt is set to move even higher up to $264.2 billion by 2018.

The impact of such a rise is best reflected in the income statement, where net annual interest payments are set to jump from $10.7 billion in 2014 to $13.0 billion by 2018. Reducing or removing such an annual impost would go a long way to restoring our budget position particularly during a time of low interest rates.

Whether we accept the reality of the situation or not, doing nothing is not an option. Politicians need to step up to the plate now and argue the case for change because frankly such is their lack of accountability, that simply taking the easy route will leave all of us more heavily exposed and with fewer options available.

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