By Chow Wei Cheng
The budget purports to give us everything: jobs, low inflation, growth and a spending boost. But its underlying assumptions are no more than the same old economic orthodoxy propounded by the Liberals — small government and a private sector-led recovery. This orthodoxy cannot benefit the majority of society.
We get more tightening of belts and wage restraint to keep inflation low. Eventually this is supposed to lead to the great investment boom and bounding growth, from which we will all prosper.
The questions to be asked are: Will the budget achieve its aim? Who will receive the benefits of growth? At what price is this to be achieved?
That last two questions were squarely answered in the unemployment white paper. Real wages will be restrained by the Accord and enterprise bargains. The long-term unemployed will be placed in schemes that guarantee a pool of cheap labour for employers, also reinforcing downward pressure on wages.
The budget promises spending on welfare, on an Aboriginal Land Fund, on health, on the Olympics and on aid to developing countries. There are still unresolved issues, such as who will be in control of funds like the Aboriginal Land Fund, and to whom will the foreign aid go to and on what conditions?
However, this spending ($7.1 billion over four years) is not as much as one would expect, given the growth estimates which the whole budget is pinned on. Under pressure from the financial markets, the deficit is being wound back and is to be in surplus by 1996-97.
The linchpin and the potential Achilles heel of the budget is its reliance on high business investment (hoped to be around 14.5%), which will bring economic growth up to 4.5%. How real is this?
Under the Uruguay round GATT agreement, and with the increasing integration of Australia into the growing Asian economies (which account for around 60% of Australian exports), there is potential for Australian businesses to expand into new markets. However, the possibility of sustained recovery will ultimately depend on how investment pans out.
After investment crashed in the recession it is now showing signs of increasing. But will it reach 14.5%? Business seems to be less confident than the government. The Australian Chamber of Manufactures chief, Allan Handberg, expressed concern that the budget relied too heavily on private investment.
One wonders how much more favourable an environment the government can create for business, with taxes cut to 33%, low interest rates and cheaper and more productive labour guaranteed through the Accord, enterprise bargaining and training wages. Corporate profits have soared in recent times, and business confidence is at a five-year high.
The budget contained no new tax rises except for tighter compliance measures and a widening of Fringe Benefits Tax. However, an increase in tax receipts is expected as the revenue from the expansion in last year's indirect taxes come in.
The government plans to wind down the deficit by relying on growth to increase taxes collected, which is very optimistic, especially when one recalls the decrease in revenue it will receive after selling off its more profitable enterprises.
Privatisations are planned to raise $2.5 billion. This translates as more redundancies and higher prices for most people. For business it means access to the profits of the government's most lucrative enterprises.
The government plans to sell off its remaining stakes in Qantas, the Australian Industry Development Ltd, Australian National Lines, Aerospace Technology of Australia Ltd, the government's 2 million kilogram stockpile of uranium, the Moomba to Sydney pipeline, Commonwealth Serum Laboratories, Federal Airports Corporation, the Housing Loan and Insurance Corporation and Cockatoo Island.
The size of the deficit has to do with the interests of business. Business wants to keep the deficit low to prevent the government's borrowing taking available funds and so driving up interest rates. By reducing the cost to business borrowing, the government hopes to increase investment.
However, there is no social control over industry's investment decisions. Who is to say it may not find more profitable returns on investment elsewhere than in productive areas?
The structural problem for the Australian economy is its small size. Even with smaller government expenditure, the funds available for borrowing on the domestic market are limited. Thus a spurt in investment will have to be funded from overseas. This will increase foreign indebtedness, increase the vulnerability and exposure to shocks from overseas. Squeezing wages and social welfare won't solve that problem at all.