What Does A Fair Budget Look Like?
5 May 2017
This essay by Jennifer Westacott was published in The Weekend Australian on May 6, 2017. It is part of the Priority for Prosperity series which explores core challenges for Australian society.
Australians instinctively judge the behaviour of others through the prism of fairness, whether it’s a football referee’s decision or the allocation of millions of taxpayer dollars. Yet our nation has two broadly competing philosophies of what’s fair, both of which are understandable, but one of which is unsustainable over the long term.
The first focuses primarily on dividing Australia’s present wealth – what we have – to deliver everyone a more equal share, assuming the national pie will either grow on its own or can be allowed to shrink so long as it is divided more equally.
The second philosophy is focused primarily on growing the nation’s prosperity so that there’s more to share, while always ensuring that those in genuine need can access a decent safety net and create opportunity for all.
I have no doubt that our future prosperity as a nation relies on disabusing Australians of the notion that Australia’s present prosperity – the doubling of real income per person over just 40 years – happened by chance, rather than as the consequence of sometimes tough but fair decisions taken by successive generations over more than a century.
Economic growth is not just numbers on a page. It is about ensuring real rising incomes per person, empowering individuals and ensuring the revenue base for government to deliver important services.
When Scott Morrison’s second budget is handed down on Tuesday, and Bill Shorten delivers the opposition’s reply on Thursday, everyone will apply their own lens of fairness. There are a few core questions that I’ll be asking.
Does the budget prioritise setting Australia up for a better future – does it make us more prosperous? Is it fair to place a hefty future burden on young people to bankroll the spending we benefit from today?
Does the budget chart a trajectory to a credible surplus? Is it fair to expose future Australians to the full brunt of a future global economic shock because the budget still hasn’t been repaired since the last one? We have had nearly a decade of deficits despite the best terms of trade in history.
Does it make every effort to avoid building up debt? Is it fair to waste Australians’ limited tax dollars paying down interest on debt, rather than reinvesting in important services?
What standards are we applying to new borrowing? Nation-shaping infrastructure projects like Sydney’s Badgerys Creek airport have the capacity to unlock tremendous opportunity for Australians, but it’s never fair to lumber taxpayers with projects that haven’t been subjected to rigorous cost-benefit analysis and run the risk of becoming costly white elephants.
What of the big spending programs like health, education and the age pension? Are our leaders prepared to carefully redesign the big spending programs in the budget –as Education Minister Simon Birmingham started doing this week with higher education and school funding – to contain spending growth while delivering better outcomes?
Is tax reform being delivered in a way that encourages economic activity rather than putting a handbrake on it? The government is absolutely right to stick to its guns on reducing company tax, which economists consistently list among the most harmful taxes as it deters business investment and suppresses wages.
Finally, are the budget measures fair when taken as a whole? You can’t ask this question by looking at any single measure, since each is a decision to take one dollar and put it somewhere else. In judging whether a budget is fair, we need to move past the notion that nobody can ever have their entitlements adjusted. When essential services are struggling to be funded, the only fair option might be to retarget benefits to the greatest areas of need.
The fairness of Australia’s welfare system should also not be judged against the largesse of the last decade, when the budget was awash with mining revenue and generous transfer payments and tax concessions were made available to millions of Australians regardless of their private wealth.
These are the criteria for real fairness. Every time our political leaders – Labor, the Coalition, or the crossbench – take the easy way out and squib a tough decision, it’s unfair. Decisions deferred for another day ultimately increase the cost to taxpayers. Unfortunately, too often the budget has become the sum of decisions that leaders won’t take, rather than those they do.
A fair public policy is one that protects people’s freedom to make choices in life – a choice of job and career, choices when raise a family, the choice to live in city or country.
It’s become fashionable in some quarters to sneer at freedom of choice, but I would argue that it is a quintessential aspect of fairness. Critics of freedom of choice almost always appear to be members of the privileged, educated classes who haven’t struggled for options in life.
It’s no surprise that free societies account for 35 of the world’s 40 most highly developed countries. Australia is the world’s second most developed country after Norway, according to the United Nations Human Development Index, and the sixth most free, according to Freedom House’s latest global report.
Fair public policy supports Australians’ aspirations, endeavour and hard work. It restrains the intrusion of government in people’s lives to the bare minimum necessary to ensure a vibrant, functional society. All government interventions – whether it’s an intrusion into Australians’ internet privacy, or intervention in markets that constrains people to buy one thing and not another – must be proportional to the problem that is being addressed.
A fair budget encourages people to participate in private enterprise and to join or start a growing business by ensuring their effort is not overly taxed. A well-paid, meaningful job remains the best pathway for Australians to achieve a better life for themselves and their families.
I continue to believe that our targeted safety net, universal education system and comparative lack of inequality are our best platform for a more prosperous society. As The Australian’s economics editor David Uren explained in these pages last month, the respected Household Income and Labour Dynamics Survey (HILDA) shows that income distribution across Australian society has become marginally more equal since 2001.
Between 2002 and 2012, Australian household incomes rocketed. After allowing for inflation, average per capita incomes rose by one-third in that decade.
This stands in contrast to parts of Europe where the redistribution-first model of fairness has led to crippling levels debt and ultimately punitive austerity, or the United States where wealth is polarised.
Nobody should downplay Australia’s subdued wages growth in recent years, nor the cumulative effect of high electricity bills and other living costs, but the question now is what we do about it. The first philosophy – the low road to nowhere where we simply carve up the nation’s wealth rather than growing it – will not deliver enduring wages growth or create new job opportunities, or reward people for making extra effort.
Wages growth stalled as new business investment collapsed at rates not seen since the Keating era. This is why Australia needs to increase Australia’s attractiveness to global investment by reducing its company tax rate, which continues to fall behind comparable advanced economies on tax competitiveness rankings.
The budget and budget reply must not mirror the kind of vilification of business and private employment that we’ve seen in Europe. That course will ultimately diminish our national wealth, with the heaviest burden falling on young and disadvantaged Australians who will be left with no choice but to bear crippling levels of tax and savage cuts to the public safety net.
Australian businesses – large, medium and small – are not villains. When well run and responsible, business is a force for good. It’s a community of some 10 million Australians who work together to generate the overwhelming majority of economic activity in our country. Big business is all of the people who work at our local supermarkets, or on Qantas and Virgin, or at Bunnings – people who deserve to see higher incomes and better jobs for their families. Is it fair to jeopardise those people’s livelihoods by imposing higher taxes on iconic Australian businesses that need to export and thrive in a competitive global economy?
Government budgets are statements of philosophy, and this year will be no exception. For every measure in the budget, Australians should ask: what philosophy does this speak to?
Does the budget reinforce the Australian values of resilience, independence, and a fair go for everyone to aspire to a better future for themselves and their families? For an older couple reaching the end of their working life, does it ensure that they can retire in dignity with a healthcare system that can be sustained into the future without burdening younger Australians with ever-higher taxation?
For a young family, does it give them a fair chance to improve their living standards, buy a home and build their household wealth? Does it provide the best possible chance for their children to get the workplace skills they need to thrive in a global economy at a public school? Does it create an environment for thriving Australian businesses that can compete on the world stage and provide well-paid, meaningful jobs?
I feel very strongly about this because of my own background, growing up in public housing in Gosford, on NSW’s Central Coast. My parents always had jobs – not great jobs, or even good jobs – but at least they weren’t unemployed.
What really made a difference was the safety net that helped launch us to a better future – public housing, an affordable education system, and labour market options to help improve our lot. These were the dividends of an open, prosperous society.
If we choose the first philosophy of dividing up only what’s there – what I call the low road to nowhere – we risk losing all of those things.
Australia has realised its current level of prosperity not by luck, but by choice. We are the beneficiaries of decisions, taken by successive generations of Australians, every one of which faced fierce opposition in its day.
The federation of the colonies, opposed by many who feared creating costly a new bureaucracy, eliminated taxes for bringing people and goods across the Murray and Tweed Rivers. Australians fought two world wars to establish our country as a bastion of freedom, not fascism, and allied ourselves to the United States, the world’s premier democracy.
In the post-war era, Australians challenged their long-held mistrust of the world by opening its doors to migrants, in time liberating markets to unleash the creativity and energy of the people, and embracing our destiny by opening new trade routes to Asia.
Throughout all this, Australian society has maintained a keen focus on fairness – the fair go. This is what I believe is helping to immunise Australia against the corrosive populism that has wracked other western democracies.
The battle isn’t over. Fairness is now being bandied about as a daily weapon to argue against taking the bold decisions that will ensure Australia’s next wave of prosperity. Remember the regressive trade union campaign against the China-Australia Free Trade Agreement? These same forces are today aligned in the misguided belief that countries like America, Britain and France joining the rest of the world in reducing their company tax rates will have no impact on Australian companies trying to attract global investment. Sorry, it will, and that will less investment, fewer jobs and lower wages.
For too long the proponents of a larger, more prosperous economy have allowed the fairness debate to be defined by those who would focus on carving up a smaller and smaller economic pie.
If Australia is to benefit from the opportunities provided by our forebears, it’s incumbent on every Australian who understands the enduring importance of pursuing economic growth to wrest back the debate. The alternative is too dreadful to contemplate.
Jennifer Westacott is chief executive of the Business Council of Australia