What are budgets for?
What kind of society do we want to be, especially coming out of covid?
How is the government delivering for all of us?
What is the purpose of this budget?
For a budget reflection that’s more thoughtful than technical, let's explore the questions that matter, and the better answers yet to come.
EDITOR’S NOTE: THIS ARTICLE WAS ORIGINALLY PUBLISHED IN OCTOBER 2020. FOR APPLICATION OF THESE IDEAS IN THE 2022 BUDGET AND BEYOND, WE RECOMMEND PRINCIPLES FOR A WELL-BEING BUDGET BY DR CRESSIDA GAUKROGER AND DR KATHERINE TREBECK, PART OF THE CENTRE FOR POLICY DEVELOPMENT’S WELLBEING GOVERNMENT INITIATIVE.
What are budgets for?
What are budgets for? I tried to explain this question to my six year old the other day. She overheard me talking about ‘budget night’ and got curious. What is a budget anyway? What were we even talking about?
“Well, sweetie,” I said, pausing just a little too long... “We pick leaders to work for us, and every year, everyone in Australia chips in money to pay for the things we need. Budget night is when our leaders talk to us about how they’re going to spend our money this year.”
Exhale. Simple enough, right?
But it got me thinking how easy it is to fixate on the ‘winners vs losers’ in our budget analysis; to focus on issues without talking about values. When we do, we lose sight of the more fundamental questions: what are budgets actually for? What’s the purpose? What are we trying to achieve?
Lower taxes?
Full employment?
A budget surplus?
Overcoming the climate crisis?
Reducing inequality?
Empowering women?
Ending poverty?
Budgets are about choices and priorities, and these priorities can change.
Since the 1990s, the political consensus in Australia has been to aim for a surplus or balanced budget – not spending more than we receive in tax – while presumably meeting enough of the community’s needs so as to be responsible. Liberal or Labor, this so-called budget bottom line became the simple litmus test of a successful budget in both the media and in the Parliament.
But, as economics lecturer Steven Hail reminds us, “we’ve forgotten that it used to be normal for governments to spend big.” It’s not like we always used to run surpluses and then the pandemic hit. For almost every single year since Federation until the late 1980s, Australia’s Commonwealth Budget has been in deficit. Describing the post-war years, Hail says:
“Governments would spend as much as was needed (some of it in the form of gigantic nation-building projects such as the Snowy Mountains Scheme) and tax as little as was needed in order to keep the unemployment rate as close to zero as practical without putting too much pressure on prices.”
But then things changed in the mid-1970s with multiple crises (stagflation, oil price hikes, higher unemployment). The general consensus across politics shifted from Keynesian to neoliberal. By the late 1990s, Treasurer Peter Costello’s ‘Charter of Budget Honesty’ had redefined the goal posts as balanced budgets and then budget surpluses.
“By the 1990s, the old consensus had not only disappeared, its successes had been erased from memories,” Hail writes. And during this time, “inequality grew, household debt trebled, and as the government continued to target a surplus, interest rates had to be cut to the point where further cuts may no longer have an effect.” Were these budgets a success? Or did we take a once-in-a-generation mining boom and throw a bunch of money up into the air?
Again, it depends on how we define success. Budgets don’t happen in a vacuum of ideology but in the rough and tumble of real life. Mining booms come and go, damage to the climate heats up, global financial markets are mismanaged into crisis, fires rage, a pandemic disrupts. Is a government’s job with each budget to spend less than they take in – or to ensure our community survives the ups and downs, faces up to our challenges and shapes a better future?
What is this budget trying to achieve, and have they got it right?
The answer from government this time, clearly, is jobs. It’s a necessary, but not sufficient, response. I suspect that leaders from times past would think we’re still playing awfully small.
After World War II, Australia's government commissioned a White Paper on Full Employment in Australia. They accepted the call to guarantee a job to anyone willing and able to work. This became the guiding economic policy of Australia for three decades, funded by varying degrees of government deficits.
Crisis has once again put our priorities into perspective; and we can hope that ambitious, people-and-planet-first ideas like this may rise to the top. But we’ve got to throw off years of neoliberal conditioning. We just can’t wait for visionary leadership to come down from on high.
Part one is understanding that as long as inflation is under control and the money is being wisely put to work, government deficits aren’t a new or bad thing. We’ve covered that a bit already.
Part two is understanding why taxes themselves are not inherently bad, and tax cuts are not inherently good. They’re certainly no cure-all for an economy in trouble or a society facing challenges.
Part three is understanding that governments are constrained by vision, boldness and imagination (or lack thereof). This is about changing our expectations of the role budgets and governments play in shaping a good society and an optimistic future.
Why tax matters
For decades now, tax has been talked down. At best, it's a begrudging obligation; something we rationally hate paying and try to minimise legally where we can, but that we ought to comply with nonetheless. We’ve all been taught to feel resentful of tax and a bit ashamed of anyone for asking for it, instead of proud and grateful for the good tax creates.
We need to get much better at talking tax, not just for this debate, but for all the debates that come after. Just because taxes aren’t required for the misguided goal of balanced budgets doesn’t mean they’re not useful and important.
Taxes are how government gets to work for us – putting our values, needs and goals into action.
Taxes are fundamentally how we solve problems that are too big or expensive to solve on our own. Taxes are how we pay it forwards, backwards and sideways: investing in our communities, our natural world, our elderly, our grandchildren; in our collective safety, wellbeing and prosperity.
Taxes are key to a strong, functional democracy: fostering a society where we all have a stake and a say. They take the hard edges off inequality and marginalisation.
Now yes, we can have a debate about what a reasonable rate of taxation is, what we should tax, how progressive our tax system should be and how our taxes should be spent. But let’s not fall for the neoliberal lie that tax is inherently bad, punitive or burdensome. And let's not allow cynicism about bad government stop us from creating good government.
Paying our taxes is the act of a proud and mature citizen, and setting fair and effective tax policy is the act of a proud and mature nation. By this measure, tax cuts could be regarded as an admission of failure; a lack of vision or imagination and an attempt by a lazy government to put the onus on us to lead a ‘private recovery’ instead of a more ambitious and effective public one.
We need to be asking, are tax cuts setting us up to flounder, if not fail?
Because when our government plans to permanently forgo billions of dollars worth of income we could have used to benefit all of us, it better have something pretty terrific to show for it.
Where’s our Snowy Hydro? Where’s our Sydney Opera House? Where’s our free higher education, improved school facilities or any of the other things we’ve done in the past? Heck, Boris Johnson is talking about powering every home in the UK from the wind by 2030. Where’s our ‘Build Back Better’ plan or ‘Green New Deal’?
Crises reveal a lot. Turns out, it’s our collective capacity to care for each other, keep things running, create new opportunities and meet our needs that serves us well and keeps us safe; not our rugged individualism, ruthless competition or unfettered free market. Tax, when fairly collected and wisely spent, isn’t a burden on society. It’s a society’s love made visible.
Tax cuts promote inequality, not recovery
Much has been written about this in the wider budget analysis, so we won’t dive in too deeply into technical arguments here. But modelling and experience show that the tax cuts ahead will primarily benefit the already well off, who largely save rather than spend their refunds. Meaning they’re a poor job-creating stimulus.
We’re not anti-savings. We just understand that tax cuts that flow mostly to higher income earners won’t do much to put more Australians back to work, lift our wages, invest in our future, restore our environment or improve our quality of life.
What tax cuts will do is further increase inequality, which in turn hurts all of us, regardless of where we land on the income spectrum.
Research finds that as we grow more unequal, we become more polarised, fractured and stressed. Social trust and cohesion erode. Mental health deteriorates, levels of violence and addiction are shown to increase. Even life expectancy is affected by the psycho-social stress caused by greater income inequality and status anxiety.
The wealthier among us might not mind too much because, at least for a while, they can buy their way out of society’s problems. But eventually we all realise we’re living in a country we don’t really like, and we wonder how we got there. How did we become so individualistic, anxious and unhappy? How did we become so dependent on private purchasing power and private corporations to meet our basic needs or have a chance at a decent life?
By contrast, higher taxes and a more progressive tax system actually lead to happier people. That’s right, the bigger the ‘tax burden’, the happier we are. One reason why might be because once we pass a certain threshold of income, more money does not increase wellbeing.
“That means that while income lost to taxes harms the poor and middle class – who tend to spend most of what they earn – it does not trouble the affluent – whose satisfaction with life is much less affected by a marginal increase in tax burden,” according to Professors Michael Krassa and Benjamin Radcliff.
Another reason is what scholars call “tax morale”: the belief that the system is fair, in part, because of the extent to which people (especially wealthy people) accept their moral obligation to contribute to society.
A third reason is all the good tax pays for.
Let us remember: it’s our capacity for collective action that has seen Australia rise to the many challenges of 2020. Gutting this for the future would be a poor legacy indeed.
Vision, imagination and asking better questions
Government is ultimately limited by its imagination and political will, more than by hard fiscal restraints.
Our next budget could be about creating jobs and de-carbonising our energy system; creating jobs and ending poverty at home; creating jobs and building affordable homes for every Australian who needs one. It could be about better recognising and supporting all the other ways people (often women) positively contribute to society, beyond the paid workforce.
But we’ve all been conditioned to expect so little from governments in modern times that it’s time to start asking far better questions; questions that tap into our values, sense of purpose and public good.
Questions like:
What kind of country do we want to live in, and what’s the best way to provide that?
Should our ultimate goal be full employment, rather than just more jobs?
Are we moving fast enough to overcome the climate crisis and build the jobs and industries we really need?
Are we doing enough with and for our First Australians?
Are we doing enough to give young people their future back?
Are we really stepping up to serve women? What might that look like?
What would it take for Australians to feel profoundly safe, hopeful and optimistic about our future?
Because what is a budget, anyway?
Sometimes the best questions come from the mouths of babes.
Update: This article was originally published in october 2020. for application of these ideas, we recommend principles for a well-being budget by Dr Cressida Gaukroger and Dr Katherine Trebeck, part of the Centre for Policy Development’s Wellbeing Government Initiative.
LILIAN SPENCER
Lilian Spencer is the Communications Lead for Australia reMADE. She believes that the secret to change is to, ‘focus your energy not on fighting the old, but on building the new.’
Other blogs by Lily:
Lessons from the pandemic, phase one
broken open in the year of great disruptions
For the love of action: people stepping up on climate change
