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The Huge Contradiction at the Heart of the 2021-22 Commonwealth Budget

May 13, 2021Hot Topic Update

Dear members,

Please see below an email from Jim Stanford, Economist and Director at the Australia Institute’s Centre for Future Work.

Dear Friends;

The Commonwealth government has tabled its budget for the 2021-22 financial year. The government is counting on a vigorous and sustained burst of consumer spending by Australian households to drive the post-COVID recovery. Yet the budget itself concedes that the main sources of income to finance expanded consumer spending (namely, wages and income supports) will remain weak or even contract. As shown in the Centre for Future Work’s analysis of the budget, these two dimensions of the budget are fundamentally incompatible.

While an abrupt turn to austerity was avoided in this budget, overall program spending is nevertheless declining substantially: falling $60 billion this year (or around 3% of Australia’s GDP) as COVID support programs are eliminated. And the new investments announced in some programs neither offset the contractionary impact of overall spending cuts, nor come close to meeting the real need for expanded services in any of these areas.

Please see our full briefing paper on the 2021-22 Commonwealth Budget. It describes the contradictory macroeconomic logic of the budget, and the risks of an economic recovery that is overwhelmingly dependent on consumer spending — at a time when consumer incomes are constrained by stagnant wages and cutbacks in income programs. It also reviews specific spending announcements in several key areas of relevance to workers and labour markets: including aged care, gender inequality, superannuation, manufacturing, and higher education.

This budget was an opportunity for the government to recognise that a sustained recovery needs a balanced and inclusive economic and fiscal approach. Full recovery can only be underpinned by a commitment to more secure jobs, higher wages, expanded public services, and a broad portfolio of high-value industries. Sadly, the budget fails to deliver on all these counts. The government has not truly accepted its responsibility to oversee a lasting and inclusive reconstruction after the terrible events of the last year.

Thank you as always for your interest and support!