Extract from ABC News
Analysis
By business editor Ian Verrender
Now for the tough bit.
Having lashed out more than $100 billion on income support through the JobKeeper program and billions more on unemployment benefits, Treasurer Josh Frydenberg on Tuesday night outlined the second stage of the plan.
While we haven't had an official recession for 30 years, we came close enough during the global financial crisis to put together an unofficial playbook on how to cope.
Step one: flood the economy with cash to keep the wheels turning while the workforce catches its breath from the sheer horror of a lengthy stint out of work.
Step two: fire up government expenditure, particularly on infrastructure and major projects that employ large numbers of workers and directly fire up growth.
After a hesitant start, and to the surprise of many, the Morrison Government lashed out with an income support program that to date has cost more than $100 billion. Add in another $25 billion at least on JobSeeker.
But it's the second step where this Government has opted to deviate from the hard-won experience of previous administrations.
Infrastructure plays a secondary role in this Budget. While there are some expansions of major programs, most have been previously announced and some of them already are nearing completion.
Instead, the Treasurer has opted to focus on tax cuts to provide long-term stimulus, rather than direct investment to help drag the economy out of the worst recession in almost a century.
A large portion of that tax relief, more than $31 billion, is targeted at business, and particularly small business.
Add that to the $18 billion in personal income tax cuts, the second-stage cuts being brought forward and backdated to July this year.
Those tax cuts easily outstrip an infrastructure spend of $14 billion.
Budget appeals to the Party faithful
Budgets are as much a political document as an economic statement, and this one appeals far more to the Coalition's political base than many expected.
As Finance Minister Mathias Cormann reiterated during a press briefing, the Government had no option but to support workers when the pandemic hit.
Had it not done so, he said, the long term consequences would have been dire.
In the process, however, it's been forced to eat a large slice of humble pie.
It pilloried the Rudd and Gillard governments for the spending programs that, in retrospect, were far more subdued than now, but which helped keep Australia out of recession during the global financial crisis.
And it made a meal out of the slide in tax revenues in the years following the crisis that hindered then-treasurer Wayne Swan's efforts to return the budget to surplus.
This is the Morrison Government's statement to the nation.
The flirtation with big-spending Keynesianism was exactly that; a flirtation and a brief one at that.
The question is: Will it work?
Like every budget for the past decade, the forward projections paint a rosy picture of a nation valiantly recovering from a rough patch and returning to normality.
All of it is underpinned by assumptions and conclusions that won't be called into question, at least until this time next year.
In this Budget, the tax cuts will lead to an economic recovery, as consumers spend their extra earnings and businesses take advantage to invest. A million new jobs will be created over the next four years.
It's entirely possible this might happen. But that all overlooks one key point.
We weren't in great shape when the pandemic hit early this year.
Wages growth had been stagnating for years, the Reserve Bank had been unable to get inflation back above 2 per cent, growth was slowing and household debt was at staggering levels, which was weighing on consumption.
To counter, the Reserve Bank was forced to cut rates three times in 2019.
Those problems haven't gone away.
They've merely been overlooked while we dealt with a global health pandemic.
Fear threatens assumptions
Budgets aren't rocket science. You raise revenue through taxes and you spend what you have to.
If you spend more than you pull in, you finance it through debt.
Slashing taxes just as you are involved in mass spending blows out those deficits and the debt.
To get the situation back under control involves either slashing expenditure down the track, or hoping the economy picks up steam.
This Budget assumes both.
While it was unstated, the numbers suggest the Government will quickly reduce unemployment benefits within two years.
Unemployment benefits will halve as the unemployment rate drops a mere 75 basis points to 6.5 per cent.
The other great threat to all these assumptions is human behaviour.
Will consumers embark upon a spending spree with their extra cash?
Recent history would suggest otherwise. After years of profligate spending and consumption, we've turned into a nation of savers, stashing away close to 20 per cent of our earnings.
Fear does that to you. It alters how you react. And, sometimes, those memories last.
Ask anyone whose parents lived through the Great Depression.
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