Australia brought down its Federal budget tonight. Sure the Prime Minister was right, it had ‘no surprises’ and the flip side is ‘no aspiration’ either.
While Europe and US have had an appetite for public debt for a prolonged period of time, and have enjoyed the favour of the capital markets, Australia should not bank on the same.
Yet the budget is on track to do exactly that, with deficits that will accumulate as a burden on the Australian taxpayer for decades into the future. The big difference for Australia is its volatile ‘terms of trade’ (the relative price of exports to import prices) must be planned for, and contingencies put in place to ensure living standards can be sustained.
Debt is not the answer, and younger people in particular need to get on the case.
The question in search of a proper response is why does this budget, like so many budgets that came before it from both Liberal and Labor, enable the transfer of wealth from the young to the old.
Australia has a serious case of what I call ‘reverse philanthropy’, and the consequences are serious.
The budget provides extraordinary tax expenditures to older groups by virtue of concessional tax treatment of superannuation, and an expectation of a universal pension funded by the taxpayer. Other benefits include, tax exemption to the family home that favours incumbent land owner, generally the older generation who also had the benefit of free university education as well.
In contrast the younger generation face extraordinary house prices, (fuelled by poor land use regulation that has restricted supply in favour of the old), and the burden of financing their university education as well.
Young people in Australia need to make their voices heard, and question the inter-generational wealth transfer that is doing them no favours what so ever. For the younger generation to pull off this financial trick of supporting themselves and paying off the debt legacy of the older generation, is going to rely on a productivity boost equivalent to the invention in 1765 by Hargreaves of the spinning jenny which could spin numerous spools of cotton simultaneously.
Of course, if such transformational technology does not eventuate the impact of high marginal tax rates required to fund the budget will crush incentive and productive purpose. If you think this sound a bit like Greece today, then your probably not wrong.