The budget update, workers not jobs, the costs of industrial policy, one year of Milei, and the bullish case for hydrogen

It's now just six days until Christmas and with most offices about to shut down, so too will Aussienomics. But I'll be back before the end of the year; there's just too much going on in Australia and the world right now for me to stay quiet for long!

To get you through until then, here's my longest post of the year on some of the things I found interesting this week.

Deficits forever

The federal government's mid-year economic and fiscal outlook (MYEFO), which basically gives us an update about what has happened since the 25 March 2025 budget, was depressingly bad. Here's the Guardian's summary:

"Cumulatively, deficits are $22bn worse over four years, with the deficit projected to increase to $46.9bn in 2025-26, or 1.6% of gross domestic product (GDP), before falling to $38.4bn in 2026-27 and $31.7bn in 2027-28, back down to a deficit of 1% of GDP."

That's despite revenue being revise up by $18.8 billion. The problem? Real spending is growing at 5.7% this year, well above what Treasurer Chalmers promised. Here's the AFR:

"Real government spending was originally budgeted in October 2022 to be a relatively low 1.8 per cent in 2024-25. The almost 4 percentage point blowout shows why Chalmers' claim that average real spending growth will be 1.5 per cent over the six years to 2027‑28 is a charade because it fails to factor in inevitable new future spending."

As as result, the federal government's share of GDP will increase to 27.2% in 2025-26, "the highest since 1986 – excluding the pandemic – just before the Hawke-Keating Labor government began a fair dinkum fiscal repair mission".

For me, the most shocking chart was the one that showed that the budget remains deeply mired in structural deficit:

Structural fiscal deficits, by definition, require economic and tax reform to resolve; they don't just go away when China unleashes another big stimulus, or the RBA over-juices the economy with easy monetary policy. To get rid of them requires a government to make conscious and deliberate choices to reform, as Hawke and Keating did.

So, what are Treasurer Chalmers and Finance minister Gallagher doing about it? Nothing; they simply deflected any and all responsibility by saying that the result is "almost half the $47.1bn deficit we inherited for this year from our predecessors", and that the deficit widened because of "urgent, unavoidable or automatic spending", all while completely ignoring the fact that their own policy decisions made the outcome many billions worse than it would have been if no decisions were taken at all.

Yes, the Scott Morrison government's spending was irresponsible. That government continued many COVID programs for far too long, and are the ones who kicked off the pattern of "hidden" spending on industrial policy, which is now up to $90 billion.

But today's structural deficits are a policy decision of the current government. They could fix it, but they're making the choice not to, for which they need to take full responsibility.

Look after workers, not jobs

Technological disruption – Schumpeter's "creative destruction" – is a feature of market-based economies. People innovate, new patterns of specialisation and trade are discovered, and the old ways of doing things are gradually relegated to the scrapheap of history.

Jobs related to those tasks become obsolete, as the firms employing workers in those roles either adapt or fail. Lamplighter, Ice cutter, Elevator operator, Switchboard operator, Milkman – these are all once-popular jobs that have gone extinct. Each and every time, the future of work and employment is brought in to question:

Artificial intelligence (AI) is just the latest in the long line of disruptive technologies. And as with just about every time before, the cries for the government to "do something" are growing louder.