The penny is dropping even in the citadels of western capitalism that trickle-down economics is no longer fit for purpose – if it ever was.
That should make it much easier for Treasurer Jim Chalmers to have his conversation about how this nation should pay for looking after the wellbeing of its citizens.
It certainly came as a shock to the ideologically hidebound people who run the latest version of the Conservative government in Britain to have the markets and the International Monetary Fund mark it down severely for unveiling billions of pounds worth of unfunded tax cuts.
The pound fell to record lows against the US dollar, banks restricted lending and the central Bank of England thought it necessary to launch a multibillion-pound bond-buying scheme to stabilise government borrowing.
The United Kingdom’s new Prime Minister Liz Truss defended her government’s mini budget costing the equivalent of $78.7 billion, saying the country’s economy “needed a reset” – she really meant a revisit of the Thatcherite dogma of looking after the rich so the benefits trickle down to the poor.
But the game was given away when even Rupert Murdoch’s The Times headlined the poor may be called on to help foot the bill because there has to be a limit to how much more debt a government can reasonably entertain.
The Times interviewed one of the Truss ministers Simon Clarke, who warned it was very hard “to cut taxes if you don’t have the commensurate profile of spending and supply-side reform.”
‘A cautionary tale’
On the weekend Jim Chalmers described what is happening in Britain as “a cautionary tale”.
He said the “global environment is a dangerous and difficult place right now” and canvassed the prospect of a recession edging from “the possible to the probable”.
Chalmers spoke of the dangers and consequences of having fiscal policy or government spending and monetary policy or official interest rates set by the Reserve Bank of Australia working at cross purposes.
Chalmers said his job in the Budget to be unveiled in three weeks’ time is to make sure that “our spending is affordable and responsible and sustainable” otherwise he risks fuelling inflation and provoking an even higher interest rate response.
Although Chalmers has set up an inquiry into every facet of the Reserve Bank’s operation including its inflation target of 2 to 3 per cent, in the meantime economists fear commitment to this target above everything else risks dangerously stalling the economy.
Australia Institute economist Richard Denniss says the target is arbitrary but every treasurer since Peter Costello has called for it in written submissions to the board, which calls into question the claimed independence of the RBA.
Stephen Koukoulas of Market Economics says the board on Tuesday should raise the rate at most by 25 basis points and he is looking for a signal that future hikes may not be needed.
Koukoulas says “a drover’s dog can see inflation free falling in 2023” and that a 50-basis point hike would be “reckless and dumb”.
Spending pressures
Whatever the RBA does on Tuesday Chalmers is still left with the five big spending pressures he keeps talking about: The rising cost of the budget’s trillion dollars of debt, health, the National Disability Insurance Scheme, aged care and defence.
At a recent news conference, he was asked if he was really talking about raising taxes and, if so, which ones.
Chalmers admitted only to raising taxes on multinational companies who earn massive profits here but pay their taxes elsewhere.
But tax is a ticking time bomb.
The Albanese government has just under two years before the already legislated stage-three tax cuts hit the budget, they massively favour the wealthy with an annual cost of almost $18 billion.
The Treasurer describes the government’s responsibility “as always try to do the right thing by people in the budget and the economy”.
“Doing the right thing by the people” apparently means not breaking the election promise to ditch stage three, which would allow the money to be directed to areas that contribute to the welfare of all Australians.
Anthony Albanese, according to those close to him in the government, is almost paranoid about not breaking election promises, but new research suggests he has little to fear.
An Australia Institute survey has found almost twice as many Australians (41 per cent) support the Labor government repealing the stage-three tax cuts than oppose (22 per cent) with 37 per cent unsure.
And significantly a majority of Australians (61 per cent) think that adapting economic policy to suit the changing circumstances, even if that means breaking election promises, is more important.
Surely a good starting point for a rational conversation that begins with the premise – if you want essential government services someone has to pay for them and that burden should be shared fairly.
Paul Bongiorno AM is a veteran of the Canberra Press Gallery, with 40 years’ experience covering Australian politics
