Michael Pascoe: Josh Frydenberg discovers his Magic Pudding

Like St Paul to the Corinthians, Josh Frydenberg is to become “all things to all people” on budget night.

The Treasurer plans to bring government debt to heel in a booming economy while talking tax cuts for the masses, taking the opportunity to “strengthen our budget and rebuild our fiscal buffers”, while announcing “further measures to support families to meet the cost of living pressures”.

It’s a difficult act to pull off. Tradition has it that St Paul ended up beheaded.

On Friday, Mr Frydenberg provided some hints about how he will attempt this particular double backflip: with a Magic Pudding inside a TARDIS.

Reading between the lines of his speech to the Chamber of Commerce, the Treasurer has discovered a Magic Pudding for dealing with the government’s record debt.

The TARDIS will deal with fresh election promises – tax cuts somewhere out in the future.

(Remember, this is a government that has made an art form out of adding up a decade of spending to arrive at a large headline number – a number dutifully lapped up by headline writers.)

What Mr Frydenberg perhaps didn’t mean to do in the speech was add a final confession that the Coalition had spent a dozen years either lying or being wilfully ignorant about how government debt and deficits really work. Or perhaps both.

Not that anyone seems to care anymore – the core of the Coalition’s economic rhetoric from 2008 to 2020 has been neatly expunged.

Mr Frydenberg’s debt Magic Pudding is baked the way he now likes to measure government debt. It’s no longer a matter of hundreds of billions of dollars – that’s so last decade.

Now it’s all about debt as a proportion of GDP.

“By growing our economy we can maintain a steady and declining ratio of debt to GDP even without running surpluses,” Mr Frydenberg said.

Mr Back in Black

Yep, Mr Back in Black now doesn’t care about surpluses. It’s the ratio that counts.

It’s a little like being caught speeding in a 100 zone and stressing you were only doing 80, when your ’80’ is miles per hour and the speed limit is kilometres.

Mr Frydenberg is correct, though, that debt is not the bogeyman he used to call it if the economy can grow faster than its interest bill. And it will in the new financial year and probably the one after that.

The economy has all the built-up sugar of government COVID stimulus that hasn’t been spent, plus cheap money and the billions of thwarted overseas holiday splurging, plus the effects of grant and tax-break induced pull-forwards in housing and business spending.

That lot and the delay in net overseas migration taking off again will make 2022-23 a hot year for growth indeed.

It’s likely to be rich enough to flow over into the next year as well, which is as far as Treasury ever tries to forecast.

For all the coverage of the big numbers in the four years of the “forward estimates”, only the first two years are actually the Treasury’s best guess – beyond that they are Goldilocks numbers based on the assumption that economy will absorb excess capacity and return to trend.

That’s fortunate for the government as the promise of its present policies is that there is nothing to replace the sugar hit when it has run its course.

Contrary to the usual rhetoric, there has been little in the way of investment in the nation’s future.

‘Can-do capitalism’ is supposed to take care of that – as long as you’re cutting taxes, cutting industrial relations ‘red tape’ and outsourcing everything that isn’t nailed down, we’re supposed to live happily ever after.

Which demonstrably isn’t the case. The economy’s refusal to reach its potential before COVID was testimony to Mr Frydenberg’s love of Thatcherism being a barren pursuit.

But this is to be an election budget. The TARDIS will take care of Mr Frydenberg’s Friday hints of tax cuts.

They’ll be out there somewhere in the future, something electors will be told they will only receive if the Coalition is returned to government.

Promises, promises

Never mind the failures, feel the promises!

It’s a no-brainer that the low-to-middle-income tax offset (LMITO) will be extended and, like last year, claimed as a new tax cut.

The “targeted and proportional” cost of living assistance promised for families is intriguing.

Neither side of politics wants to say it, but it is policy to achieve the level of inflation we are currently experiencing.

With unemployment about to fall under 4 per cent, it is meant to push workers to demand decent wage increases again.

But admitting that, let alone applying it to public servants, is not in Mr Frydenberg’s bag of tricks.

Somewhere in a mountain of elector-sensitive spreadsheets, I suspect a one-off bonus is in the offing for “families”.

Which will be fine because it won’t be much as a proportion of GDP.
Funny thing: while Mr Frydenberg likes to measure debt as such a proportion, the Morrison crew goes to great lengths to ignore its title as Australia’s biggest taxing government as a percentage of GDP.

“Officer, I was only doing 80.”

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