Analysing and critiquing the entire budget would require a significant time investment and a substantially long piece of work. Unfortunately, as a ‘wealth-producing' member of society, I don't have the time to do that (unlike the government, who employ thousands of staff to compile this extravagant, multiple-hundred page document with someone else's money). So instead, I'm just going to look at the key points (namely, what the Treasurer mentioned in his speech).
Before I get started, lets just quickly touch on how the government plans to pay for most of this, as Mr. Swan claims that "...every single cent of new spending for the coming year has been more than met by savings elsewhere in the Budget." However, he also mentioned that he's going to sell $60bn worth of government bonds - that's not savings, but it is a good sign that they plan to monetise the debt through inflation in the future (the RBA will have to either print to buy the bonds or to keep interest rates at the 'target' level). By issuing bonds and paying an above-market "safe" return (otherwise no one would buy them), it starves the market of private capital and credit; it means that increasingly, private savings are being siphoned away from productive investments and into wasteful and counter-productive government expenditures. These bonds represent nothing more than credit extended to companies and projects that are proven market failures. Creating these bonds is a way of institutionalising the principle of buying low and selling lower, all "backed" by future tax and inflation.
Enough of that though, let's get to the budget.
The Working Families Support Package
Mr. Swan announced $55 billion dollars to support so-called "working families...[who] demand little more than a fair go". This is in the form of tax initiatives, child care, education, housing, and other "essential" components of family budgets.
Tax Cuts
Apparently the proceeds of the boom were "skewed" to those already "doing well" and that the people "doing well" weren't paying their fair share. "Fair" is a key component stressed throughout the budget - indeed it's mentioned six times in this relatively short speech. But what is fair? The common definition of fair is:
"...free from favouritism or self-interest or bias or deception."
To me, Mr. Swan's version of "fair" sounds like the usual lie perpetuated by governments of both sides (left & right) to distribute income to whoever they're more "fair" towards. Indeed, when you look at the facts, the tax burden isn't fair at all![1]
A more recent report by the Treasury[2] shows that the bottom 20% of taxpayers account for 6.5% of taxable income but only 2% of tax paid, while the top 20% accounted for 45% of taxable income and 59% of tax paid! Looking at the above table, it's also clear that most of the tax benefits go to the so called "working families". Sorry Mr. Treasurer, but they're asking for much more than a "fair go".
Whenever the government takes tax money and doles it out to someone other than the person who paid the tax, it becomes no different from a common thief. And even if it does dole the money out to the person it took it from - then what's the point of taking it in the first place? It becomes a legitimate exchange, a role the private sector is more than capable of performing. It's utter nonsense to say that the government will spend tax money for the "wealth" of our nation; the common thief would do the same, as would the person it was taken from had he not been stripped of his wealth by the government. If this is nothing more than welfare, then simply state as much. But please don't cloud it with false economics, as if somehow the "...backbone of our economy" is a class that gives more than it takes (it is, but it's not the class Mr. Swan thinks it is!).
Child care costs
The government plans to "...ease the burden of child care costs". Everyone who has a child (assuming they fit into the "backbone" category) gets a $7,500 payment along with a 50% child care rebate, for a total cost of $1.6 billion over four years. Again, this is nothing more than welfare. Not only that, but it also has far more severe consequence: it will obscure incentives and reward poor people who have children. Rather than giving people a "fair go" and lowering the tax they pay, it's giving them more money than they even pay in tax (they can actually make a profit off of another tax payer)!
This is a policy that rewards childbirth, warps the marketplace and blurs economic reality for parents, resulting in a perverse outcome: more children born into poor families. It will serve to increase the welfare state we live in, but also boost the pool of future voters for the Labor party. I can really see how this is going to help the economy.
Education costs
So to help all of the families that were lured into having more babies, the government is also going to educate them in the ways of the state. For a meagre $4.4 billion over four years, and further taxes for the top 20% of income earners (paying the majority of taxes already obviously isn't "fair" enough!), "...eligible parents will be able to claim a 50 per cent refund on eligible education expenses for children undertaking primary or secondary school studies - up to $375 for a primary schooler and up to $750 for a secondary school child each year". So not only is it cheaper for poor people to have more children, it's cheaper for them to provide for them as they get older. No doubt this army of children (the new welfare class?) will grow up to be ardent supporters of government, because they "owe them" so much for "helping" them throughout the years.
Improving housing affordability
We're now "helping" the very same people all the other spending promises are "helping" by providing affordable housing, at a cost of $2.2 billion dollars. If the government was really interested in helping the welfare class, they could start by ceasing their debasement of the dollar, the hidden tax on the poor that makes it very difficult to get away from the trough. It's much easier to become productive and achieve wealth when the target isn't constantly moving away from you. Likewise, artificial credit expansion only raises the price of houses - along with all of these grants that are supposed to "help" the poor. They're nothing more than a subsidy to the building and construction industries!
Supporting older Australians and carers
Welfare for the elderly-at least Mr. Swan doesn't hide this under the guise of economics. But who's going to complain about more money for the elderly and carers? Unfortunately, the presence of the state in retirement security creates calculational confusion, resource misallocation and mismanagement along with harmful free riding. The real cost of this will be borne by future taxpayers, who are paying for the pensions of the present retirees but can expect to receive little in return. If the government really cared, they'd remove forced retirement and let individuals and families make rational and responsible decisions that enable them to provide for their old-age needs. A good start, as above, would be to cease immediately the debasement of the currency so that people would be more able to calculate how much in the form of savings they would actually need to retire on.
Easing cost of living pressures
More powers for the ACCC as people are worried about "...the cost of essential goods such as groceries and petrol". Nothing to see here - a simple justification for government expansion on the basis of a government created problem (again, the debasement of the currency results in higher prices: it's the low-income people who struggle to keep up with government-sponsored inflation).
NEW ERA OF RESPONSIBLE ECONOMIC MANAGEMENT
Mr. Swan is claims he's going to be responsible, yet just released a budget deficit that's going to take 20 years to repay. Apparently, he's simply redirecting spending to "...more pressing priorities". It's the fall in revenues that's to blame, not the increase in spending. Of course! We need these services! The government always knows where to best allocate other people's resources for their own good (you see, people can't be trusted to make decisions for themselves). The most bamboozling quote of all is this one,
"Mr Speaker, some Australians have been asked to bear a greater burden than others, that's true. But in the end, if we're to beat inflation and build prosperity, we have no choice. We simply cannot go on as before, spending irresponsibly, and allowing inflation to build."
I'm not quite sure what Mr. Swan is trying to say here. Inflation is purely a government phenomenon. It's caused by the inflating of the money supply: I can't print dollars, my neighbour sure can't, and other countries can't. If he was serious about stopping inflation, why not return to sound money and cease debasing the currency? I agree about ceasing government spending, but this budget is the highest spending budget in our history. Mr. Swan is trying to have his cake and eat it too: he's contradicting himself.
MEETING OUR COMMITMENTS
For one, only half of Australian's voted for you Mr. Swan. Where was the "none of the above" option, where I'm able to opt out of paying tax and also opt out of all of your "help"? He continues with "...we will begin tackling the big challenges on Australia's horizon, by providing long-term plans, not short-term bandaid fixes." Translation: we're going to plunge the country into long-term debt and wealth destruction, big government, and a removal of individual freedoms, rather than let the market fix itself (which would likely happen in the short-term!).
Education Revolution
The education promise is $5.9 billion dollars over five years to increase the skills of our workforce. How, again, does Mr. Swan know what skills our workforce needs? In plainer words, how is it possible for bureaucrats, so disconnected from the real world, to know what the market demands more than the market itself? Surely entrepreneurs would be better placed to determine the type of workers they need and invest in their education and training accordingly. The education industry in this country is a government-protected monopoly that forcibly restricts competition and needs to end.
Better hospitals and health services
By pumping yet more money into a health system that's riddled with free rider and moral hazard issues is not the solution to our health woes. If people had to bear the costs of their own decisions - whether through insurance, savings, or charity - they would likely be far more responsible with their own wellbeing (by the way, "insurance" isn't the perverted system we have now. Only government could be so deluded to think that planned, optional procedures should be covered by insurance). Rather than piss away more billions on "educating the people", give them some responsibility back!
Tackling climate change
We're getting more funding for "green" alternatives. One can only wonder how far we'd already be down this road if governments removed their subsidies on "dirty" energy and people had to pay the appropriate price for these products. It's always a good laugh when government-run energy companies plead on prime-time television for people to cut back on their electricity usage. It's the perfect example of why government can't be in business and shouldn't be providing services - they have no idea how the price system works! Can you imagine if McDonalds started advertising, telling people to stop consuming so many burgers?
Supporting business
I'm sorry, but if you want to "support" business, remove all taxes and regulations (and no, I don't want quasi-deregulation, which can cause far more problems than it prevents).
Regional and Rural Australia
Mr. Swan here provides more welfare for "rural" Australians, who choose to live there of their own free will, yet constantly plead for aid (out of someone else's pocket). One thing to note is the funding for "water for the future", which brings "...a comprehensive and coordinated approach to water supplies". Only when the government manages a resource, such as water, are we faced with shortages. If the market, the pricing system, was allowed to work, there would be far less squandering of this precious resource than exists today. As per the above example, the government is an organisation who actually advertises - even forces people in the form of water restrictions - to not use their product! Ridiculous!
Indigenous Australia
More welfare for the indigenous, like they need any more "help" from the government. Welfare only increases their dependence on the teet of the state. Welfare is a key cause of unemployment. If they would level the playing field (by ceasing any and all involvement), there wouldn't be any need to supply a continuous stream of "aid" to this cause.
National security
Mr. Swan promises more funding for the military and mentions part of our overseas network. Obviously the Labor party is no different to the Liberals in foreign policy - both seem to be heavy advocates of cooperating with the U.S.'s "empire building" policy, as much as they try to disguise it otherwise.
INVESTING IN THE FUTURE
"Mr Speaker, this is a Government of nation builders.
We have no intention of hoarding the strong surplus for its own sake. This money is not ours, it belongs to the Australian people."
How correct he is (on the latter part). The only problem, of course, is his government isn't giving any of it back to the people it was taken from. On to the more pertinent issue of "nation building", our infrastructure may or may not be lacking, but why is the government best placed to decide where investments should be made? Why should we hand over more power and money to the government, further entrenching government employees in their overpaid, underworked jobs? We don't need more government involvement, we need less. Government lacks the incentive to fix problems, especially in infrastructure. Even with incentives, there's the calculation problem associated with allocating the use of resources, as I mentioned earlier with water and electricity shortages. Private markets, on the other hand, excel in this area. Whilst they may not be perfect, resources are used efficiently to solve the most urgent demands as revealed in the system of profit and loss. As the government lacks this mechanism, everything becomes arbitrary at best and political at worst.
Building Australia Fund
See above, $20 billion dollars for "critical" infrastructure that the government can't possibly know is critical. At best they can have a guess (surveys and so on?), but without the price mechanism, it's impossible to know what people really want.
Health and Hospitals Fund
Mr. Swan pledges an initial $10 billion dollars on hospitals, equipment and so on. Please see the free rider and moral hazard issues above. "Free" healthcare is not only not free, but it can't work (well).
Education Investment Fund
You wouldn't be far off if you thought these sums were from some kind of fantasy land, because there's over $17 billion going into education. But when money grows on trees (or you can print it), who cares, more for all! See above (Education Revolution).
COAG Reform Fund
$78.6 billion for the states (I love how he includes the .6 - what's $6,000,000 when you're talking in billions and it's not your money anyway?). I wonder what strings are attached to this payment...
Future Fund
$3.9 billion dollars for retired public servants - not only have they done nothing productive throughout their lives, living off the fruits of the private sector, but they haven't even provided for themselves in retirement (although to be fair there was no incentive to - the government does promise to take care of them!).
Australia's Future Tax System
This is the scary part because it's so vague: we need something that "builds the nation"; one that's "fairer"; "respects the environment and demographic challenges"; makes us "internationally competitive"; and "creates incentives to invest in our productive capacity". One would think, reading that, that Mr. Swan was advocating for the removal of the tax system, such is his play on words! It's clear that our leaders are floating off in some mystical utopia, because as long as the system stays in its current form or goes the way Mr. Swan wants - towards big government - it's unlikely any of the above will be achieved.
CONCLUSION
Despite all of the big talk, behind the smoke screens Mr. Swan has carefully laid out, at the end of the day the government has plunged the nation into major debt that is going to take considerable amount of time to repay, all on the back of fear mongering tactics and economic fallacies (see the issue with "jobs" in the previous post).
The money for deficit spending has to come from somewhere. It either comes from taking on more debt, printing the difference, raising taxes, or some combination. When the government takes on more debt, it raises interest rates for private borrowers, thereby hurting the economy. As the RBA fixes interest rates (at present, probably too low), it will have to print money, resulting in inflation that takes real value away from the private sector. Finally, if the government raises taxes to pay for the deficit in the future, then it again takes from the private sector. Regardless of how it funds the deficit, the government will crowd out private investment and redistribute or even destroy wealth, thereby slowing economic recovery.
No matter how much Mr. Swan will assure you to the contrary, the world will not come to an end if government "does nothing". Indeed, we'd probably all be better off. The real motive behind sinking us into debt is the love for higher taxes and for higher government spending for their own sake, or, rather, for the sake of expanding statism and collectivism as contrasted with the private sector. It's hardly a very cleverly hidden agenda but for some reason most people still can't grasp it. And no, I doubt the Liberals would be any better.
[1] Ann Harding and Neil Warren, "WHO PAYS THE TAX BURDEN IN AUSTRALIA? ESTIMATES FOR 1996-97" Discussion Paper no. 39, February 1999
