Permanent and Political

an analysis of Federal Government spending post-pandemic
by Matt Saunders and Richard Denniss

Prime Minister Scott Morrison and Treasurer Josh Frydenberg have stated repeatedly that their government’s approach to stimulus spending in the wake of the covid crisis was for ‘temporary and targeted’ measures to boost economic activity in the short term without creating ‘structural pressure’ on the budget. For example, in announcing first of three stimulus packages on March 12, 2020, Scott Morrison said:

“The measures are all temporary, targeted and proportionate to the challenge we face.  Our actions will ensure we respond to the immediate challenges we face and help Australia bounce back stronger on the other side, without undermining the structural integrity of the Budget.”

Similarly, when announcing the second stage of the covid crisis support Scott Morrison stated:

“We know this will be temporary.”

The Prime Minister made the centrality of the short-term nature of spending programs explicit when explaining his preference for curtailing income support programs with his comments on May 11, 2020:

“The JobKeeper and the JobSeeker program, as you note, have a legislative life which was set out over a six-month time frame…So, look, we’ll take that one step at a time. But I need to stress again that that was a temporary lifeline put in place to help Australians through the worst of this crisis. It comes at a very significant cost, not just to current but to future generations as well. And it will be there to get us, to meet that objective, but it’s not envisaged – never was – to be a longer-term arrangement.”

He expressed the same sentiment nearly a year later, on April 15, 2021:

“A scheme that is burning cash, their cash, taxpayers’ cash to the tune of some $11 billion a month cannot go on forever, Australians understand that.”

Treasurer Frydenberg relied on the same rationale to explain the design of the Commonwealth support package on July 29, 2021:

“The expansion of the NSW COVID-19 business payment remains consistent with the approach we have taken throughout the pandemic in delivering temporary, targeted and proportionate economic support”

And in explaining the design of the 2021 budget the Treasurer explained:

“It (the 2021 budget) provides around $40 billion in targeted, temporary support to boost aggregate demand. 2021 budget.”[5]

However, despite the frequency with which the claim that increased public spending was temporary was made, and the fact that unemployment is now well below its pre-covid level, Commonwealth spending is not just well above its pre-covid path, Treasury forecasts that Commonwealth spending will remain well above its pre-covid path for at least a decade.

While an increase in Commonwealth spending is not itself evidence of a problem, the fact that the government has failed to deliver on its commitment to rely only on temporary increases in expenditure creates several economic and democratic problems, including:

  • The democratic desirability of the new sustained spending programs. While policies such as an increase in unemployment benefits and free childcare were temporarily provided during the crisis, they were withdrawn on the flawed claim that the Morrison Government was committed to avoiding new permanent increases in spending.
  • The appropriateness of the stage 3 tax cuts which were legislated before covid and before the Morrison Government’s sustained surge in spending.
  • The efficiency of new spending programs such as the $7.4 billion worth of new dams which were approved without cost benefit analyses or business cases being developed.

Full report