Federal Budget 2021-22 earns a “C-grade” rating from economists

While the federal government is spending big in its 2021-22 federal budget, there are a number of important questions around whether the government is spending in the right areas, says UNSW Business School’s Gigi Foster

Things to commend off the bat include the further investment in employment services, traineeships, and apprenticeships, and the tax cuts for low- and middle-income earners, said UNSW Business School’s Professor of Economics Gigi Foster. “The former group of programs is useful in helping employees and employers connect with one another in mutually beneficial ways, after many links in the labour market were severed over the past year (whether before or after the conclusion of JobKeeper),” said Prof. Foster.

“I also liked the targeted support for industries hard hit by the events of the past year, although that funding (as with JobKeeper) only seems intended to keep things afloat until a return to comparative normalcy, rather than investing into Australia’s future.”

Women and the federal budget

She also observed that it was no surprise, in light of recent dramas involving the very politicians and party standing behind this budget, to hear so much spruiking of the budget’s attention to women.

“Funding for sexual harassment, domestic violence, childcare, medical services and even the super guarantee (itself a bad idea, as it increases the cost paid by employers when they hire lower earners, and because superannuation companies are making money hand over fist from fees with every dollar saved in superannuation packages) were all presented in a woman-centric way, despite the fact that all of these things also affect men, whether directly or indirectly.”

There was also mention of allowing home purchases with only a 2 per cent down payment for single parents (presumably mostly women), which Prof. Foster said is irresponsible in her view. “Such a policy may sound empowering, but in fact such light down payment requirements saddle these vulnerable people with mortgage debt disproportionate to their earning potential and make them even more vulnerable if interest rates rise,” she said.

Childcare falls short

While the pre-school investments in the federal budget sounded promising, Prof. Foster said she was hoping for a wiser overall childcare package. “The $1.7 billion advertised as being spent on childcare appears to be only about cost relief. Where is the supply-side intervention required to make childcare services sustainably accessible and of high quality?” she asked.

One way to make progress here would have been to announce funding for public-private partnerships to build new centres or refurbish existing ones. “The government would be well-advised to take a leaf from its own aged care package book, which with a whopping price tag of $17.7 billion aims to ‘significantly improve the system’ by offering a range of innovative supports, from more home care packages to training places, retention bonuses, and respite services for carers,” she said.

“But for childcare – for which less support is given in this budget than for the rollout of a vaccine for one illness that mainly affects older people and has so far claimed fewer than 1000 lives in the country – we see only a surface-level (though expensive) fiddling with the sticker price. Childcare should be viewed as the social infrastructure that it is – and invested in as such. Instead, when we heard ‘infrastructure’, it was mainly code for ‘transportation’.”

Read more: Does the government’s budget childcare package fall short?

Vaccination spend

Prof. Foster observed that a “staggering amount” of spending was announced for the vaccination program: even more than, for example, the digital strategy which incorporated areas including cyber security and digital skills cadetships.

“What is this eye-watering amount of money going to fund, exactly? I confidently expect that a large chunk of it will be spent on pointless consulting projects that merely serve to enrich entrenched interests without actually helping Australians,” she said. “How about investing in local COVID vaccine development following more traditional manufacturing techniques that people are more likely to trust – such as the program being pursued now at Griffith University?”

Asset write-offs

Prof. Foster also said extending the asset write-offs for businesses was not unexpected, but represents more “easy stroke-of-the-pen measures likely to be taken advantage of by businesses that don’t really need extra assets anymore, but can get them for a song (and perhaps hope to store and then resell them later, rather than deploying them for innovation).”

The “patent box” tax relief idea (targeted for health and biotech, to be expanded to energy) may also create some valuable innovation, but as the tax relief that will come from being able to tick that box represents a big financial incentive, Prof. Foster said she expects it will also trigger some abuse of the patenting system in the absence of close independent monitoring.

Unemployment rates

Prof. Foster said the unemployment rate hasn’t yet been measured post-JobKeeper, and “won’t capture all the damage done to the labour market during the COVID period anyway. “Underemployment and poor matching of employees to employers are still significant concerns that will depress GDP going forward,” she said.

“Because the damage we’ve done to ourselves is worse than what one might glean from the conventional economic statistics we’ve seen so far, I don’t really believe the rosy growth forecasts bandied about in the budget. Non-fiscal measures – such as stopping the silliness of stop-start domestic lockdowns and other COVID protocols and opening our international borders – are required to actually recover from the situation we’ve boxed ourselves into over the past year,” said Prof. Foster.