Central Council

The Federal Budget May 2021

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Great approach, weak execution. Economists decline to give budget top marks





Wes Mountain/The Conversation, CC BY-ND

Peter Martin, Crawford School of Public Policy, Australian National University

Despite overwhelmingly endorsing the general stance of the 2021 budget, only a few of the 56 leading economists surveyed by the Economic Society of Australia and The Conversation are prepared to give it top marks.

Asked to grade the budget on a scale of A to F given Treasurer Josh Frydenberg’s objective of securing Australia’s economic recovery and building for the future, only three of the 56 economists surveyed gave it an ‘A’.

But a very large 41% awarded it either an A or a B, up from 37% in last year’s October COVID budget.

The economists chosen to take part in the Economic Society of Australia survey have been recognised by their peers as Australia’s leaders in fields including macroeconomics, economic modelling, housing and budget policy.

Among them are a former head of Australia’s prime minister’s department, a former member of the Reserve Bank board, a former OECD director and two former frontbenchers, one from Labor and one from the Coalition.

Of the panel members who commented on the historic stance of the budget — expanding the size of the deficit beyond what it would have been in order to drive down unemployment — all but three offered enthusiastic endorsement.

Emeritus Professor Sue Richardson of the University of Adelaide commended the government for at last turning its back on a “debt and deficit” mantra, that was “never justified”.





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Exclusive. Top economists back budget push for an unemployment rate beginning with '4'


 

Professor Richard Holden praised the “watershed”. In due course there should be increased attention paid to the structure and quality of spending, but for now we should applaud the “Frydenberg Pivot”.

Saul Eslake said the strategy of providing further stimulus to push unemployment down to levels not seen consistently since the first half of the 1970s was the right one. It meant the Reserve Bank and the treasury would no longer be working at “cross purposes” as they had been for most of the past two decades.






The Conversation, CC BY-ND

But Eslake said the budget fell short in the A$20 billion it devoted to tax concessions for small business in the mistaken and unfounded belief it is “the engine room of the economy” and in housing measures that failed to heed warnings from history about the risks of ultra-high loan-to-valuation ratios.

Rebecca Cassells of the Bankwest Curtin Economics Centre said the claim that 60,000 jobs would flow from extending the temporary loss carry back and full expensing tax concessions was “a stretch,” with the connection quite tenuous.

Bucks, but not the biggest bang

Consultant Nicki Hutley said a bigger boost to the JobSeeker unemployment payment would have achieved much more than the $7.8 billion one-year extension of the “lamington” low and middle income tax offset.

Economic modeller Janine Dixon said while spending more to get more people into work was the “right setting for the times,” Australia had to ensure its workforce was ready to supply the extra aged care and child care and disability services it had funded by delivering the right training, especially in the absence of migration, which has traditionally been used to address workforce shortages.

Labour market specialist Elisabetta Magnani said measures to boost wages in the caring occupations could have achieved the double bonus of drawing more workers into those occupations and shrinking the gender pay gap, given that more than 80% of the workers in residential aged care are female.

Little for net-zero

Michael Keating, a former head of the prime minister’s department, said restoring high wage growth would require big investments in education and training, which sits oddly with the cuts in funding for universities. The extra funding for apprentices and trainees only makes up for past cuts.

Professor Gigi Foster said the $1.7 billion spent on childcare subsidies was only “surface-level fiddling with the sticker price”.

“Where is the supply-side intervention required to make childcare services sustainably accessible and of high quality?” she asked. “Childcare should be viewed as social infrastructure. Instead, when we heard infrastructure, it was mainly code for transportation.”





Read more:
Fewer hard hats, more soft hearts: budget pivots to women and care


 

Margaret Nowak of Curtin University said a budget that really “built for the future” would not have focused on the “infrastructure of the past”. Professor Richardson lamented that most of the infrastructure spending was on traditional “roads and ports” when the future was net-zero emissions.

“There is little in the budget that supports this transformation,” she said. “It is an extraordinary lost opportunity.

Nicki Hutley said retooling the economy for zero emissions would have brought forth "more jobs, higher wages, more growth and private sector co-investment”.

Some concern about debt

Former OECD director Adrian Blundell-Wignall said a much-greater investment in vaccinations would have helped “get the economy back to work and the borders opened sooner which, in turn, would have saved unemployment benefits, tourism, aviation support and the need for the extension of temporary measures”.

And he was concerned that a jump in US inflation might cause international interest rates to rise faster than expected, forcing Australia to cut its projected budget deficits in order to stabilise net debt.





Read more:
Frydenberg spends the bounty to drive unemployment to new lows


 

Former International Monetary Fund economist Tony Makin, a critic of government spending during the global financial crisis,
described the budget spending as a “knee-jerk primitive Keynesian reaction” to the COVID recession.

Unease about going into debt to keep and create jobs aside (and very few of the economists surveyed shared Makin’s unease) the criticisms of the economists surveyed relate to execution and details. If Frydenberg had been judged on his approach, most would have given him an A.


The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Comments (56)


Peter Abelson - Comment

The budget is the heart of government policy. Therefore, it is difficult to review a budget separately from the whole of government policy. As a Liberal-National Government budget, we score this budget as a pass (grade C). Increased funding for higher unemployment benefits, childcare, aged care, women?s safety and carbon emissions reduction is welcome. But as several commentators have pointed out, the annual increases are modest. Citing 4-yearly total amounts is misleading rhetoric. In our view, the current level of debt at around 50% of GDP is not a concern, especially at current interest rates. Government debt-to-GDP ratios are over 100% in many OECD countries. Although it may be noted that our debt is due mostly to recurrent budget deficits, and not (more appropriately) to funding capital expenditure. However, from a more social democratic perspective, the budget is unduly conservative. The levels of social assistance, especially for the aged care and disability sectors and for job seekers, remain modest. In our view, there should be more focus on a well-being budget along OECD lines. Foreign aid has been reduced. And apparently there is no funding for a badly needed Federal Integrity Commission. Nor is there any serious tax reform: no tax on high levels of wealth, continuing low tax on some very high incomes from superannuation funds, no resource taxes, no carbon prices and no broadening of the GST (where our tax base is much narrower than in most other OECD countries).

C


Garry Barrett - Comment

C


Nicole Black - Comment

Good to see overdue attention given to a range of sectors including aged care, mental health and childcare, and great to see a focus on women. But, in most cases, funding will not go far enough and it remains to be seen whether the funding boost to mental health services reaches those most in need, including those in rural and remote areas. I would like to have seen federal support for the emotional wellbeing and mental health of school-aged children ? this is where life-long differences can be made. A coordinated national program to consistently measure and track the mental health and wellbeing of students in all schools would be a good start. It would allow us to build needed evidence for future investments.

B


- Comment

Good that the surplus mantra has been dropped for at least the time being. Also, good to see some substantial funding directed to areas in desperate need, such as aged care, childcare and mental health. However, there is too little and it comes too late, while areas still substantiality impacted by border closures, such as tourism and universities, have been left to fend for themselves meaning more job cuts. Most importantly, there is still no credible plan for the transition to a clean economy to deal with climate change nor for skills improvement to boost productivity in the long term. At best, the budget will keep the economy treading water and exposed to further negative shocks, such as a drop in iron ore prices or further restrictions on exports to China.

C


Adrian Blundell-Wignall - Comment

I give the budget a creditable B because, while there were some very good aspects, I can?t help but feel the government erred by not buying vaccines on time to the (unnecessary) due to the cost top the budget in the years ahead. I also felt the effective interest rate assumptions are at the optimistic end. The very good things in the budget are those relating to a longer-run plan for growth? a healthy population with infrastructure investment needed to diversify away from dependence on mining. Full marks for aged care, infrastructure, mental health, preschool for all and women?s security. Supporting the digital economy and some of the changes to super, also rate a positive mention. On the vaccines, most of the cost is for 2021-2022. The vaccines should have been contracted for around March-2020 (as some countries did) with perhaps half the population vaccinated by now (as in Israel and the UK and US not far behind). We are only now beginning to vaccinate. There is enormous leverage to getting the vaccine timing right. It would have helped to get the economy back to work and the borders opened sooner which, in turn, would have saved unemployment benefits, tourism, aviation support and the need for the extension of temporary measures. We can?t point to how good we look versus other economies in GDP. We are a hard-to-get-to island unlike Europe and the Americas. There will be hidden cliff effects when support drops off or is withdrawn. For example, small business bankruptcies are at record lows versus where they would be in a normal year. And it has not been a normal year. My B also relates to the sanguine view on real interest rates. Even if inflation stays at 2.5% in the middle of the range for the next 5 years, real interest rates will likely rise. The budget assumes the effective interest rate on the public debt will drift lower (as legacy higher-interest-rate bonds mature). With the likely levelling-off in the global saving glut real rates will be subject to upward pressure. Higher US inflation will likely pressure the Fed to raise short rates and reverse QE over the next 5 years. Higher inflation results from interruptions to global supply chains: the bottling up of fiscal-driven demand and the unprecedented increased in the money supply. It is the first time in decades that central bank money is directly funding government spending and putting money into people?s pockets (as opposed to the interbank market). If US rates rise, rate pressures will transmit to Australia as it always does. It is unwise to place too much weight on interest rates remaining very low in real terms. If real rates rise above trend growth of say 2.5%, the primary deficit would then need to be cut for debt to stabilise.

B


Alison Booth - Comment

What was missing: ? Climate change and environmental issues. Given the government is spending to provide jobs and avoid recession (great idea), why not spend on innovation and works with a high marginal social value and with longer term as well as short term goals? ? In addition, why not consider expanding the tax system on eg resources taxes, carbon pricing and in so doing not only expand the tax base but also meet our international responsibilities wrt climate change? ? Vaccine rollout and further development of a vaccine manufacturing base. Given quality of our medical and related researchers, worth investing in them to make us, if not world leaders, then at least not world laggards. ? More quarantine facilities. Important, given the likely future for further pandemics. (Howards Springs quarantine facility took over Inpex?s buildings. Are there more ?villages? like that that could be exploited? If not, why not build some remotely? Or close down a few coal mines and put returning Australians into fly-in, fly-out facilities for workers?) ? Arts funding. The arts sector is labour-intensive. It employs more workers than coal mining. What the budget did for some arts institutions was good as far as it went, but it could go further. ? University funding. Blindingly obvious but see the points above.

C


Markus Brueckner - Comment

A


Matthew Butlin - Comment

For this stage of recovery, the macro picture is about right, especially with a push to lower the unemployment rate below 5 per cent and lift capacity utilisation in the economy. Employment is a key means of addressing poverty. That said, I would like to have seen more to address poverty- an increase in unemployment benefit and spending on low income housing. Overall a B++ from me.

B


Lisa Cameron - Comment

The budget provided resources for many of the areas needing reform, e.g. aged care, but other than providing more funds did not propose reforms that would address the underlying structural problems. This is very much the case in aged care where the privatisation of the sector has led to rorting by some providers and where the low pay of aged care workers results in low quality care. The budget increases spending on aged care but doesn't address any of these underlying issues. The increased funds may just increase the attractiveness of the sector to those whose interest is profit rather than care.

C


Rebecca Cassells - Comment

The 2021-22 budget deserves a B grade. It targets spending where it?s needed, seeks to incentivise business investment, household spending and job creation through tax breaks and is fiscally responsible recognising that government is capable of carrying greater levels of debt. Almost half of the $74.6bn new spending commitments are targeted at addressing significant social and economic issues that have long needed additional resourcing - child care, aged care, disability support care and suicide prevention. In time, more will need to be done to improve the structure of these services and ensure longer-term funding sustainability. The forward estimates look reasonable, with some notable outliers including the expected 12.5% growth in non-mining business investment in 2022-23. The extension of the full expensing and loss carry-back are expected to drive much of this growth and ultimately contribute $18bn to GDP at a cost of $20.7bn. The initiatives are also expected to add 60,000 jobs ? this is a stretch and the connection likely to be quite tenuous. The reinstatement of the women?s budget statement is also a significant step and worth noting. There are shortcomings, but it?s a good start.

B


Deborah Cobb-Clark - Comment

It's good to see spending levels maintained given the current pandemic. However, the spending could have been more targeted towards economic recovery, job creation, and supporting industries and workers particularly hard hit by the crisis.

C


Janine Dixon - Comment

The expansionary fiscal policy is the right setting for the times. We now need to ensure the workforce is ready to absorb additional spending on aged care, child care and NDIS by making sure that sufficient workforce training is delivered, especially as it is not currently possible to turn on the migration "tap" to address workforce shortages.

B


Brian Dollery - Comment

With loose monetary and fiscal policy, the Australian economy faces potential inflationary conditions. We are already seeing rampant asset inflation, with general price rises next in line.

B


- Comment

I am very pleased to see the government resist calls for austerity. Hopefully we can at last put behind us the "debt and deficits" charade that has for decades derailed meaningful discussion economic policy in this country. Looking at the actual budget initiatives however, I'm very disappointed to see a lack of emphasis on the vaccine rollout, quarantine capacity etc that are essential to making sure that we have the pandemic properly beat. As with the budget last year, there's still too much a sense that all the government needs to do is scale up fairly conventional tax and spending measures, but this is an unconventional crisis and requires a different set of priorities.

C


Saul Eslake - Comment

The overall budget strategy - of providing further stimulus to support the recovery from last year's recession, with a view to pushing unemployment down to, and sustaining at, levels which we haven't seen for any length of time since the first half of the 1970s - is the right one (in my view). It means that fiscal and monetary policy will be working in harmony towards a common goal, rather than at 'cross purposes' as they have done for most of the past two decades - which in turn means that the chances of arriving at that common goal are much greater than they would have been otherwise. My mark falls short of an "A" however because in my view many of the specific measures in the budget fall short of the ideal. In particular there is too much 'genuflection' at the altar of 'small business' - in the mistaken and unfounded belief that it is the 'engine room of the economy' and if only they are allowed (legitimately) to pay less tax on any given amount of income than wage-earners or larger businesses (something which a larger percentage of small businesses seek to do illegitimately than of larger businesses) then everything will be 'peachy' with regard to employment creation, innovation and investment. And most of the housing-related measures fail to learn the obvious lessons from either our own history or from the experience in the US before the GFC with ultra-high loan to valuation ratio mortgages.

B


ALLAN FELS - Comment

B


Gigi Foster - Comment

Things to commend off the bat include the further investment in employment services, traineeships, and apprenticeships, and the tax cuts for low and middle income earners. The former group of programs is useful in helping employees and employers connect with one another in mutually beneficial ways, after many links in the labour market were severed over the past year (whether before or after the conclusion of JobKeeper). I also liked the targeted support for industries hard hit by the events of the past year, although that funding (as with JobKeeper) only seems intended to keep things afloat until a return to comparative normalcy, rather than investing into Australia?s future. It was no surprise, in light of recent dramas involving the very politicians and party standing behind this budget, to hear so much spruiking of the budget?s attention to women. Funding for sexual harassment, domestic violence, childcare, medical services and even the super guarantee (itself a bad idea as it increase the cost paid by employers when they hire lower earners, and because superannuation companies are making money hand over fist from fees with every dollar saved in superannuation packages) were all presented in a woman-centric way, despite the fact that all of these things also affect men, whether directly or indirectly. There was also mention of allowing home purchases with only a 2% down payment for single parents (presumably mostly women), which is irresponsible in my view. Such a policy may sound empowering, but in fact such light down payment requirements saddle these vulnerable people with mortgage debt disproportionate to their earning potential and make them even more vulnerable if interest rates rise. Speaking of childcare, while the pre-school investments announced tonight sounded promising, I was hoping for a wiser overall childcare package in this budget. The $1.7 billion advertised as being spent on childcare appears to be only about cost relief. Where is the supply-side intervention required to make childcare services sustainably accessible and of high quality? One way to make progress here would have been to announce funding for public-private partnerships to build new centres or refurbish existing ones. The government would be well-advised to take a leaf from its own aged care package book, which with a whopping price tag of $17.7 billion aims to ?significantly improve the system? by offering a range of innovative supports, from more home care packages to training places, retention bonuses, and respite services for carers. But for childcare ? for which less support is given in this budget than for the rollout of a vaccine for one illness that mainly affects older people and has so far claimed fewer than 1000 lives in the country ? we see only a surface-level (though expensive) fiddling with the sticker price. Childcare should be viewed as the social infrastructure that it is, and invested in as such. Instead, when we heard ?infrastructure? tonight, it was mainly code for ?transportation?. A staggering amount of spending was announced for the vaccination program ? even more than (for example) the digital strategy (including cyber security, digital skills cadetship, etc). What is this eye-watering amount of money going to fund, exactly? I confidently expect that a large chunk of it will be spent on pointless consulting projects that merely serve to enrich entrenched interests without actually helping Australians. How about investing in local Covid vaccine development following more traditional manufacturing techniques that people are more likely to trust ? such as the program being pursued now at Griffith University? Extending the asset write-offs for businesses was not unexpected, but represents more easy stroke-of-the-pen measures likely to be taken advantage of by businesses that don?t really need extra assets anymore, but can get them for a song (and perhaps hope to store and then re-sell them later, rather than deploying them for innovation). Instead of this I'd have liked to see a HECS-style revenue contingent loan scheme. The ?patent box? tax relief idea (targeted for health and biotech, to be expanded to energy) may create some valuable innovation, but as the tax relief that will come from being able to tick that box represents a big financial incentive, I expect it will also trigger some abuse of our patenting system in the absence of close independent monitoring. Finally, the unemployment rate hasn?t yet been measured post-JobKeeper, and won?t capture all the damage done to the labour market during the Covid period anyway. Underemployment and poor matching of employees to employers are still significant concerns that will depress GDP going forward. Because the damage we?ve done to ourselves is worse than what one might glean from the conventional economic statistics we?ve seen so far, I don?t really believe the rosy growth forecasts bandied about tonight. Non-fiscal measures ? such as stopping the silliness of stop-start domestic lockdowns and other Covid protocols, and opening our international borders ? are required to actually recover from the situation we?ve boxed ourselves into over the past year.

C


John Freebairn - Comment

A for short term fiscal stimulus in recognition of unemployment, and more so the high labour underutilisation rate, low inflation, and to complement the constrained ability of monetary policy to provide further stimulus. On the other hand a D for failure to grab the opportunity for longer term structural reforms to support productivity growth necessary for higher wages and living standards, payment of aged care and child care initiatives, and repayment of debt. Potential longer term reforms include taxation, rationalising commonwealth/state expenditures, energy policy, industrial relations.

C


Renee Fry-McKibbin - Comment

To secure Australia?s economic recovery and build for the future, the budget assumes that Australia will open up mid next year. However, notwithstanding a miracle and COVID going away, the only way for that to happen is to have more resilient quarantine and widespread vaccination which is in the control of the Federal government. Despite this being a government responsibility (and hence the government has some control of whether the budget assumption will be realised) there is no funding for better and bigger quarantine and the vaccine rollout is slow. In the long term the lack of a transition plan will creates business uncertainty and a lower likelihood of attracting future business (particularly as the rest of the world is already opening up), lower investment, loss of skilled migrants, and continued heartbreak and loss of identity of being Australian by those told that they must remain in precarious circumstances and cannot come home. I can?t see that the short term stimulus that the budget provides will offset these long term effects which cannot be reversed quickly.

C


Lata Gangadharan - Comment

There were several things to like in this year's budget. For example, the spending on health was good to see, as was the spending on child care related aspects. There were however some glaring omissions as well. Tertiary education has missed out again this year. There is no plan for improving research funding or research infrastructure. Similarly, investment in infrastructure related to opening the economy (building secure facilities for quarantine etc), seems missing. This can cost Australia both in the short term and in the long term.

B


RICHARD HOLDEN - Comment

This budget is a watershed. It marks a shift in Libera Party fiscal philosophy away from an austerity-driven "debt and deficits" mantra to a focus on economic and employment growth. In due course there should be increased attention paid to the structure and quality of spending, but for now we should all just applaud the "Frydenberg Pivot".

A


Nicki Hutley - Comment

My overall rating of C is based on three separate categories: dealing with the pandemic recovery phase, longer term vision, and environment. On the pandemic recovery, there is a lot to support short term job recovery and just the size of the spending alone will help this, even if it's not all targeted in the way I'd like. For example, more for those on Newstart would have been preferable to another year of the Lamington, and more help for tourism and the arts would have been better than spending on tradies' trucks.) But, all in all, the public sector will continue to spur economic growth in 2021-22, so I give this component a B+. On the longer term vision, there's some bits and bobs to like. The Patent Box sounds sensible, and the child care subsidy extension, although it doesn't go nearly far enough, is certainly a really positive step in the right direction for female participation. The social spend for aged care, violence against women, mental health, NDIS, and so on - are all very welcome. But there's nothing in there that pulls together a coherent vision of a wealthier, more productive Australia; one with higher wages and a sustainable growth path. This was an opportunity lost, especially given the debt we're now piling up. I'm giving this a B-. Perhaps most important to me, though, is the missed opportunity to invest in a renewable recovery. This would have meant more jobs, higher wages, more growth, less emissions and attracting private sector co-investment. It also would have sent a clear signal to the market, rather than spending on gas and oil. There were a couple of environmentally positive initiatives, but way too little. I rated this an D.

C


Michael Keane - Comment

The budget is pretty good as far as it goes. It is nice to see the government is not obsessed with deficits in the current climate. And the significant additional resources for Aged Care, the NDIS and mental health are welcome. But the level of additional resources devoted to infrastructure is very disappointing: $15 billion over 10 years is not at all commensurate with current needs. And the vast bulk of the money goes to traditional road and rail projects, with very little allocated to such urgent needs as renewable energy, climate change adaptation, environmental sustainability, water resources, etc. This shows a real lack of ambition, which is why I give it a C (although I wish I had the option of B- or C+).

C


Geoffrey Kingston - Comment

This budget exudes optimism. It assumes rapid recovery of tax revenues, a fast vaccine rollout, no third waves of the virus, no spikes in the cost of servicing the debt, and limited threats to national security. Under these assumptions, net national public debt would max out at 41% of GDP in 2025-6. That would indeed be a decent outcome. Fingers crossed. I would have preferred a budget that put more weight on the possibility of less benign outcomes. This would entail spending less on new social programs and more on securing the Pfizer and Moderna vaccines, along with federal facilities for safe quarantine. Likewise, the budgeted increase in defence spending, at 4.1 per cent in 2021-22, is small, given that it is coming off a low base.

B


Michael KNOX - Comment

The first thing we can see is that the Australian turnaround has been achieved with much smaller budget deficits than in other major OECD countries. Yet in spite of relatively small deficits, we have a strong recovery in which those budget deficits move to even smaller levels. These better than anticipated budget deficits support bigger social programs in the years ahead. Still some very conservative estimates on future iron ore prices allow the government the chance of further happy surprises over coming years.

A


Guay Lim - Comment

The Budget contains spending initiatives to consolidate the economic recovery underway, but it is unclear what strategies are in place to sustain inclusive economic growth.

B


James Morley - Comment

As with the previous budget, this one gets the "big picture" right in terms of sustaining fiscal support for the economy to offset headwinds from COVID. Yes, many economies, including Australia's, are bouncing back at impressive rates. But this has been underpinned by fiscal support and is also quite fragile. Crucially, we don't know exactly where we will land over the next five-year horizon compared to the previous path for the economy, except that it is likely to be lower than would have been projected before the recession (as is often the case with recessions) and the quicker a move to fiscal austerity, the lower the likely path. Having a more ambitious (i.e., lower) forecast for the unemployment rate is a fine feature of the budget and makes it clear that sustained fiscal support is needed for the Australian economy given current unemployment is still clearly elevated as a result of the COVID crisis. However, Treasury should avoid getting into too much of a guessing game about the exact value of the natural rate of unemployment, which tends to move around over time for a variety of reasons. It is a bit disappointing, but not surprising, to see the "culture war" aspects of the budget with real cuts to public media and university funding per domestic student. Also, beyond supporting the economy through the COVID crisis, it would have been better to have included a more ambitious plan to accelerate the vaccine rollout (and ongoing vaccination programs that will be needed for the next few years), expand remote quarantine facilities and repatriation flights that are, after all, the constitutional responsibility of the Commonwealth government, and develop other initiatives to reopen borders as soon as possible (like supporting and funding separate quarantine programs to bring back international students from countries with very lower ongoing incidence of COVID-19).

B


A Abigail Payne - Comment

Very safe and pragmatic. Was it ambitious enough? Given we are experiencing an event none of us have ever experienced, there are no lessons to learn from the past. Moreover, the pandemic is a worldwide issue - much of it is out of our control. Likely the budget represents the best that can be done for now.

B


Mala Raghavan - Comment

The government?s focus on supporting the service sectors such as aged care, childcare, mental health, and women?s health and safety; and the provision of JobTrainer funds to these areas are commendable. A big tick for that. However, the government failed miserably on other key areas such as funding for the environment and renewable energy. These are vital sectors to achieve Australia's long-term sustainable development goals. Government shows no mercy to the bleeding higher education sector and there are also not many other attractive schemes in the budget for the development of young people. Youth upskilling and reskilling are crucial as they are important human capital pillars of this nation. The government is criticized for not supporting international tourism. Given the uncertain environment, it is wise to restrict international travel to Australia, until the majority of the population are vaccinated. Australia?s recent economic performance is admirable, and it demonstrates the importance of containing the spread of the virus to achieve health and economic benefits. To ensure the survival of the tourism sector, the government could work with tourism operators to create international travel bubbles from low-risk countries while the state governments could continue to provide incentives such as travel vouchers to encourage domestic tourism across states.

B


Rana Roy - Comment

Credit where credit is due! As Australia emerged out of the recession of 2020, with a contraction in GDP of 2.5% over the calendar year, the immediate question facing the Australia Government in its 2021 Budget was whether to maintain expansionary fiscal settings, in order to reduce unemployment to below its pre-COVID 19 level, or to declare victory, change course, and refocus on reducing the budget deficit and the public debt. By choosing the former option, the Government has chosen correctly in regard to this immediate question and should be applauded for it. In my answer to the 2020 Budget poll ? and ?in sorrow, not in anger? ? I graded the Budget a ?C?. At the time, I feared that the stimulus would be insufficient, both in regard to consumption and in regard to investment. On the former, I argued for an expansion of Jobkeeper and an increase in Jobseeker, on the latter, for a permanent extension to the full expensing of depreciable assets. The Government has provided a greater stimulus on both counts: on the first, by a somewhat more generous spend on Jobkeeper/Jobseeker/Jobmaker, etc., and also by an extension of the LMITO tax credit, on the second, by another temporary extension of full expensing. I am therefore content to grade the 2021 Budget a ?B? in regard to its contribution to fulfilling the first of its declared objectives: ?to secure Australia?s economic recovery?. To give a lesser grade would be less than gracious. Credit must also be given to the stimulus to the Australian economy supplied by Beijing, and to the productivity and generosity of the Chinese steel worker ? Australia?s own ?Ragged-Trousered Philanthropist? ? who somehow manages to absorb an iron ore price of more than US$200 per tonne and still produce competitively priced steel for the Chinese and world markets. Iron ore exports delivered A$102 billion to the Australian economy in 2019-20, as against A$77 billion in 2018-19, and, via taxes and royalties, ?a record $39.3 billion windfall for federal and state governments? ? see Geoff Chalmers, ?Miners deliver record $39bn windfall to boost government bottom lines?, The Australian, 18 May 2021. And the iron ore price today is delivering ?effectively US$180 a tonne of pure margin? ? see Su-Lin Tan, ?Australia-China relations?, South China Morning Post, 18 May 2021, https://www.scmp.com/economy/china-economy/article/3133821/china-australia-relations-start-mining-boom-20-canberra-rakes. This is a far higher economic rent than any OPEC member-country ever gained from a barrel of oil. In regard to its second objective ? ?to build for the future? ? I would give the Budget a far lower grade. I do not see much evidence here of a serious engagement with the question of the future: that is, with the key factors that are likely to shape it and the threats and opportunities that it is likely to present. But it might perhaps be more helpful to leave the grade as a ?B?, in appreciation of how the Government has answered the immediate question before it, and then to add below some thoughts on the question of the future. These are: 1. The Budget acknowledges that: ?downside risks to the outlook for the global economy from ongoing outbreaks of the virus in major economies, including India, could have implications for Australia?s domestic economy?. In fact, the sum of what has already obtained and what is very likely to obtain will indeed have implications for the Australian economy, which is highly dependent on the world economy ? including the implication of up-turning the assumptions used in the Budget forecasts. 2. COVID-19 is neither over nor trending downward. According to the Johns Hopkins University COVID 19 Dashboard, the count of daily cases in late April/early May 2021 was the highest yet, the count of daily deaths the second highest after January 2021 (and obviously likely to rise in the wake of the rise in the count of daily cases). See https://coronavirus.jhu.edu/map.html. 3. The death toll to date from COVID-19 is likely to have been far greater than the recorded official estimates. This week?s edition of The Economist ? see https://www.economist.com/briefing/2021/05/15/there-have-been-7m-13m-excess-deaths-worldwide-during-the-pandemic ? provides an estimate of ?excess deaths?, to date, of between 7.1 million and 12.7 million, with a central estimate of 10.2 million. It concludes: ?The official numbers represent, at best, a bit less than half the true toll, and at worst about a quarter of it.? Relatedly, the true ?scarring effects? over the long term are likely to be greater than in official estimates. 4. The IMF?s April projection of 6.0% growth for the world economy in 2021 ? see https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/world-economic-outlook-april-2021 ? included projections of 3.3% growth in real GDP for Japan, 8.6% for ?developing and emerging Asia?, and 12.5% for India. Indeed, all the international agencies? projections for 2021 included a projection of double-digit growth for India. As it happens, the Japanese economy contracted in Q1 and is almost certain to contract in Q2 as Japan battles its third wave of COVID-19, much of ?developing and emerging Asia? is doing worse than in April, and India today is drowning under the second wave. 5. India?s catastrophe is also a catastrophe for the world, and not only because of its weight in the world economy, as the world?s third largest economy (measured in PPP terms). India is also ? or rather has been, until now ? the world?s largest supplier (that is, exporter) of COVID-19 vaccines: see https://news.sky.com/story/covid-19-how-does-indias-pause-on-vaccine-export-hurt-other-nations-12290300. Given that India has supplied more than 20 times what the United States has done to date, it is clear that the three other manufacturing giants, China, the European Union and the United States, will need to scale up massively both the production of vaccines and the share of output exported. 6. Perhaps the world's developing and emerging countries will be able to source sufficient supplies in time, most likely from China, and perhaps India too will recover before too long. It is clear, however, that all this will have major implications for future trade, economic and geo-political relations, with South-to-South trade likely to become ever-more dominant. 7. If the Australian Government truly wishes "to build for the future", it would be well-advised to pay close attention to global developments and to play its role in the global arena constructively and generously. In this context, it does not reflect well on the Government that Budget 2021 cut foreign aid yet again. Nor does it reflect well on the Australian media and the "political class" that scarcely anyone took note of the fact.

B


Jeffrey Sheen - Comment

This was a reasonably measured and generous budget as far as meeting a range of social imperatives, such as health, aged care, child care and disability. However there was insufficient attention given to important sectors still struggling from the effects of border closure (such as education and tourism), and an opportunity has again been lost to deliver serious reform and expenditures to raise ailing productivity.

B


- Comment

The Federal Budget appropriately decided to continue fiscal support to protect economic growth and reduce unemployment. There is also good and important investment made to improve the quality of services especially aged care. The concern is the lack of discussion of the pathway that will be needed to return to fiscally sustainable targets for example a previous target of ?tax to GDP cap of 23.9%?.

B


joaquin vespignani - Comment

In general, the budget was very good. However, I believe that the budget fell short in terms of supporting education (most notably; tertiary education). In my opinion, the challenge for the next 2-3 years will be the unmatched skills in the labor force that most economies will face after the unprecedented disruption caused by the Covid-19 pandemic. Consequently, I believe that countries with more education/skills attained will attract significant more investment in new and emerging sectors (hence economic growth).

B


Beth Webster - Comment

It a credit to the Treasurer that he has abandoned the illogical obsession with a budget surplus given we have unemployment and low inflation. However, given the windfall gain to the Treasury coffers from the iron ore price surge, the question is: has he spent this bonus wisely? On the plus side, he has released a number of large grants for catalysing the next generation of industrial growth and new forms of comparative advantage. Essentially de-risking development of long-term technological advantage. One the downside, he has missed an opportunity to remove consumption and production subsidies for diesel and increase consumption taxes for petrol. Money gained from these taxes should go towards solar and wind installations that will enable us to produce green steel and green hydrogen and thus become a leader in new export industries.

B


Danielle Wood - Comment

I think a 'B' reflects the significant steps in the right direction this budget takes - The shift in fiscal strategy to prioritise bringing unemployment down below 5%. This reflects the economic reality that monetary policy is (largely) out of steam and we need fiscal policy to drive the recovery. It's still not enough to get real wages growing again over the next four years according to the Treasury forecasts, but certainly better for the recovery than an austerity budget. - More spending on social services where it is desperately needed - Aged Care, mental health, childcare and women's safety are all areas where services have been short-changed for too long. The government hasn't gone the whole hog on some of the big structural reforms recommended in these sectors, but it is still a significant step forward on recent budgets. - More money for vaccine procurement and logistics - getting the population vaccinated as quickly as possible and re-opening borders is crucial for the recovery. The budget falls a bit short on the 'build for the future' part and the lack of any meaningful measures to address climate change marks it down.

B


- Comment

The significant stimulus to aggregate demand in the budget will certainly be helpful in supporting Australia?s economic recovery ? but more could have been done to ensure that stimulus was delivered in such a way as to also build for the future. For example, investment in infrastructure is a sensible use of debt funded stimulus but I would have liked to have seen infrastructure investment that also meets long term economic and social goals. For example, investment in social housing would have multiple positive spillover effects in the areas of homelessness, poverty, education, mental health etc. while also stimulating the economy. Similarly, investment in alternatives to fossil fuels would help stimulate demand while also helping to tackle climate change. I welcome funding in the aged care, mental health, disability and childcare sectors.

C


Lisa Magnani - Comment

The government has abandoned the long-standing position of fiscal restraint and budget surplus. This is not surprising although it raises questions about the consistency between short-run and long-run effects of the 2021 Budget, and the vision underlying its long-run effects. The 2021 Budget shows the government's ability to listen to some social groups that have been hurt by the Covid-19 pandemic and by past policies. For example, measures go towards addressing the neglect in many past Budgets of social issues disproportionally impacting women (from child-care and female retirement incomes to adequate housing opportunities for women caught in domestic violence). Another example of the government?s sensitivity to social issues is the Aged Care package of $17.7billion, which addresses many issues raised by the Royal Commission on Australia's aged-care system. There are clear misses though, for example, a strategy to address issues such as the large gender wage gap and the gender-bias in post-retirement financial security. There is also little to address the low wages paid to the many women who work in Aged Care facilities (the Workplace Gender Equality Agency's data indicates that 83.3% of the 'aged care residential services' workforce is female). Australia has demonstrated a remarkable resilience and many indicators have returned to March 2020 levels; e.g., payroll jobs in Australia in March 2021 indexed to payroll jobs in March 2020 (Source ABS), national unemployment rate at 5.6% (although underemployment is still at 7.9%), and employment to population ratios at almost pre-Covid levels. This resilience could have been a springboard for a Budget that supports short-term recovery while also providing a long-run fiscal plan that supports Australia's economic development. A fiscal plan that aligns short-term and long-term strategy is not only desirable, but also needed in some key respects; e.g., tax reforms, climate change and sustainability, and industrial transformation (including the role of universities). Starting from tax reforms, the Australian government?s projected debt reaches $1trillion in 2024-2025. In this respect, the Budget's generosity lacks long-run dimensions as it is unclear what future budget repair measures will entail, the distributional effects of these future budget repair measures, and what current measures will be sustained. The retainment of Stage 3 tax cuts for high income earners, which was designed in a pre-Covid-19 world, adds an important dimension to the source of future budget deficits. There is little in the 2021 Budget about clean energy and green recovery. While the 2021 Budget includes a few entries to support ?low-emission? technology development, it is hard to see the overall strategy as these are embedded in an inconsistent and complex set of measures, some of which ignore the whole idea of green recovery. As for research and innovation, the Budget leaves little hope for the university sector. Industry-support to PhD students will be important, but there is little indication of how universities and industry can work together in a systematic way to support the country's future. Overall, this Budget has a set of good short run measures but lacks a vision and consistent strategy to address long-run challenges.

C


Warwick McKibbin - Comment

The Australian federal government budget should have been focused on three broad goals. First, to tackle the covid-19 pandemic by maintaining income flows in the economy and encouraging investment in vaccine production and quarantine facilities. Maintaining economic activity and investing in reopening the economy are critical as the Australian economy recovers from the pandemic. Secondly, to reverse the decline in productivity growth that Australia has been experiencing over recent decades to create the conditions for strong economic growth in the future. Thirdly, to lay the groundwork to respond to the challenge of climate change, as the global community is likely to take serious action that has long-term implications for the Australian economy. The demand stimulus in the budget is significant. This stimulus is funded by increases in borrowing which is not necessarily a bad thing. Still, it does become problematic if borrowing is used to finance consumption rather than investment and if global interest rates rise. That part of the spending that focussed on infrastructure is positive as long as that spending is independently assessed as having a high economic return. However, most of that infrastructure should have been green infrastructure spending to support the adjustment away from fossil fuels to a low carbon economy. A key ingredient in productivity growth is an investment in human capital, which is achieved through funding university research. With the collapse of foreign student income, which was subsidizing university research, the university sector is vulnerable. This problem was substantially ignored in the budget. University funding has been cut in nominal terms over the coming years. The world is likely to be taking significant action on climate change which will substantially impact Australia?s fossil fuel exports and the future structure of the Australian economy. These external forces are more important than any particular domestic action on climate change but are ignored in the budget. This budget is a lost opportunity for enhancing innovation and productivity growth and addressing climate change. The budget relies on assumptions that hopefully will be proven correct. Still, if the premises are wrong, it leaves Australia vulnerable in a highly uncertain world.

C


Flavio Menezes - Comment

Delivering a federal budget with a focus on economic growth was the right call. It recognises that: (i) there is still too much uncertainty to start the budget consolidation process, (ii) the economic recovery has been fast, but unequal, and (iii) it fits with the bipartisan support for an expanded role of government as provider of social insurance (NDIS, Aged Care). This is where my praise for the budget ends. There is no long-term vision, and it is difficult to see a rationale for some of the (significant) expenditures beyond short-term politics.

C


Alison Preston - Comment

The 2021 Commonwealth budget is low on vision and does little to nothing to address current and future concerns such as climate change and social infrastructure. Increased financial support for the care-economy is an important start but ?building for the future? requires government also pay attention to the needs of the care workforce (wages, hours, employment security). The care economy is highly feminised and is struggling to attract and retain workers. Why? Working arrangements which are unappealing and relatively low pay. The government missed an opportunity to provide important leadership in this area (eg. funding to help raise wages).

C


John Quiggin - Comment

As with last year's budget, the aggregate settings were basically correct, but the detail of policy is poor. Most importantly, the absence of any serious response to climate change can't be sustained and will require a radical policy shift in the near future, once we are pushed into a 2050 net zero commitment.

C


Sue Richardson - Comment

I was tossing up between C and D. I chose C because the budget at last turns its back on the ?debt and deficit? mantra, that was never justified. This will assist with the ?economic recovery?. The commitment to a more ambitious notion of full employment is also very welcome. The spending on aged care is also a big contribution towards a decent future for our growing number of elders. The big fail, is that it is a budget for the past, not for the future. There is a very large expenditure on small business, which on the whole is not the engine of growth. The infrastructure spending is mostly on the very traditional ?roads and ports?. The future is one of zero net greenhouse gas emissions. The transformation of the energy, agricultural, transport and manufacturing systems that this requires is enormous, will require unprecedented levels of investment and needs to start now. There is little in the budget that supports this transformation. It is an extraordinary lost opportunity. Related to this, there is very little to support the large scale adaptation to the coming hotter and more dangerous climate that is now unavoidable. Finally, the future for Australia implied in this budget includes even greater loss of our unique plants and animals, as they succumb to ?development?, land clearing and invasive pests and animals. Apart from the very welcome extension of marine parks, there is little in this budget to give hope for an end to the further destruction of nature.

C


Leonora Risse - Comment

The budget fulfils the need to spend big as the way to keep the economy on the road to recovery. Where there is scope for improvement is in terms of how this money is spent. The government is mainly relying on conventional sources of growth (eg. physical infrastructure and manufacturing) and could do more to adopt a more strategic, forward-thinking approach, better tailored to the pandemic environment. Building a strong, inclusive, sustainable economic future for Australia requires more attention on long-run drivers of growth: (1) investment in the university sector as generator of productivity-enhancing skills, knowledge and research (2) incentives for R&D and innovation across all industries (3) investment in the workforce capabilities, resourcing, and wages and working conditions of high-need, high-growth sectors (eg. aged care, mental health services)4) strategies to combat the fact that closed borders have currently turned the tap off two key sources of economic growth ? migration and export-oriented services. (4) strategies to combat the fact that closed borders have currently turned the tap off two key sources of economic growth ? migration and export-oriented services $17.7 billion for aged care is aimed at lifting the quality of a sub-standard system. While a critical mission in its own right, the budget misses the opportunity to transform the aged care sector into a driver of growth. Along with childcare, disability care and mental health services, investments in care infrastructure facilitate stronger workforce involvement and the more efficient use of skills among those who currently give their time towards unpaid care (predominantly women). Plus these are labour-intensive industries which - with adequate resourcing - generate jobs. A more comprehensive budget response would make stronger provisions for not just expanding places, but also supporting the workforces responsible for delivering these care services. Modelling commissioned by the National Foundation for Australian Women quantifies the clear growth dividend, and shows that this form of public investment (which includes lifting the wages of care workers) largely pays for itself by activating higher workforce participation and hence tax revenue (See: https://nfaw.org/wp-content/uploads/2020/10/Appendix-A.pdf). Assessment by the Grattan Institute suggests that the 33,800 aged care training places earmarked in the budget is in sufficient to secure a pipeline of qualified staff (See: https://theconversation.com/budget-package-doesnt-guarantee-aged-care-residents-will-get-better-care-160611). Similarly, while the budget trims the cost of childcare for some families, it does not contribute to expanding the childcare workforce's capacity to respond to this higher demand. Federal leadership is missing in construction of quarantine stations to host returning citizens, skilled migrants, international students, business travellers, and others whose contributions matter for long-term economic growth, as well as enabling Australians to reconnect with family members as a matter of wellbeing. Besides generating jobs, this seemingly essential component of our plan towards economic recovery - and re-integration with the global economy - was a missed opportunity.

C


Susan Thorp - Comment

Several of the headline policies in the budget, such as increased spending on aged care, are heading in the right direction but face challenges of implementation. And despite the benefits of ongoing expansionary fiscal policy, the budget fails to direct certainty and support to two major export sector, tourism and universities.

C


Rachel Ong ViforJ - Comment

In general, the budget struck the right emphasis on economic recovery and jobs. However, the size of the budget deficit is worrying. The schemes designed to assist home purchase are merely band-aid solutions to a massive housing affordability problem that requires genuine structural reform.

C


Fabrizio Carmignani - Comment

The good thing about this budget is that it was not about repairing the deficit and debt accumulated in 2020. Whether this is because of a fundamental change in perspective (i.e. away from the idea that balancing the budget is in itself a goal of fiscal policy towards the idea that the budget is a tool) or more opportunistic electoral reasons is difficult to say. However, most of the specific measures are in my view insufficient or inadequate to support the continued recovery of the economy and to create the basis for longer term growth. For instance, there is in this budget - as often in the past - an almost blind confidence in the power of investment in physical infrastructure to drive future growth and development. In fact, the future prosperity of Australia depends on innovation that requires social rather than physical infrastructures. As for previous budget, the government seems to lack a coherent view of the Australia of the future, e.g. what our society will look like, how to enable the drivers of sustainable prosperity, etc...Similarly, in spite of the narrative, the budget does only the bare minimum in terms of supporting women, even though one has to acknowledge that even this bare minimum is a step forward from the past. The support for aged care is good news, even though the planned investment only partly fills the gap left by years of underinvestment, particularly in relation to staff training. Also, social housing is an important missing item. Needless to say, this budget does very little, if anything at all, to support two critical sectors like tourism and universities that have been badly hit in 2020 and will continue to be badly hit as a result of the decision to keep the borders closed for another 12 months. All in all, I would define this as "the budget of the missed opportunities", hence the low grade.

D


Craig Emerson - Comment

The continued fiscal support is necessary and welcome, but fiscal support alone cannot make the economy more productive on a sustainable basis. On the current policy settings, the best we can hope for is a return to the pre-pandemic economy of slow economic growth, weak productivity growth and stagnant real wages. In fact, the budget's forecasts are for reductions in real wages. Australia needs a new, comprehensive program of microeconomic reform. Other than some welcome but modest deregulation measure there is no indication in the budget papers of any serious attempt at microeconomic reform. Any thought of economic reform has been deferred until after the next election, but if the Coalition were re-elected it could not claim a mandate for such reform.

D


Paul Frijters - Comment

I pity the treasury economists that had to come up with this one. They have been forced to pretend there is an unlimited amount of money to spend with no need to worry about debt, investments in education, or tax evasion. I particularly had to laugh about the plans to attract skilled migrants and students to Australia whilst it has turned itself into a prison camp that does not allow visits to family overseas. Good luck with that. It seems the treasury is being forced to make the best of an unsustainable situation in the hope the public comes to its senses on corona. The only saving grace has been the huge increase in iron ore prices that has rescued the balance of payments. Talk about 'lucky'!

D


John Hewson - Comment

The budget was predominately an election budget, having carefully sought to neutralise issues and appeal to political constituencies, significant to the re-election of the Morrison Government. Its vision is essentially just to the next election, probably to be held before the end of this year. Economically, they feel that they have done enough by way of fiscal and monetary support to basically sustain a run of favourable economic numbers until the election, but have done very little to sustain a significant recovery in the longer-term - in their words to "Secure the Recovery" but not "Sustain" it. Main fiscal concerns are the very significant recurrent spending on social issues - child and aged care, the NDIS and mental illness - on debt , and the commitment to Stage 3 tax cuts (also probably requiring the conversion of the "Lamington" into the tax scales) that will prove to be unaffordable costing about $25b ( in today's dollars) in what will be a world of Budget Repair in 2024. To be generous, the budget does initiate some Reform of Aged Care along the lines of the recommendations of the Royal Commission - in spending about half the recommended annual amount, with some focus on better training and improved services, but no adjustment to the wages of carers and nurses, and no acceptance of the need for an Independent Commission to oversea the sector.

D


Michael Keating - Comment

This budget deserves a B+ for securing the economic recovery, but only an E- for building for the future, resulting in an overall D rating. This budget does not address the causes of Australia's economic stagnation prior to the pandemic. Negligible real wage growth is forecast to continue, and the forecast increase in productivity to 1.5% in 2022-23 and beyond is an heroic assumption. Restoring past rates of economic growth will not be possible without addressing the structural problems in the labour market. This will involve much more investment in education, training and research. But the universities are experiencing a major funding cut, and the extra money in this budget for apprentices and trainees only makes up for past cuts.

D


Margaret Nowak - Comment

The budget ensures ongoing spending and avoids the debt and deficits mantra. It will help support the economy but in a very patchy way. Important sectors of the economy such as education have been left to founder despite having been a very significant contributor to our external balance, and despite its importance to the research and training which would underpin long term growth in productivity and innovation. Another sector left to bootstrap themselves to recovery is the cultural industries, despite their importance to employment and the fact that they were also left to fend for themselves over the past year. At the same time the budget added fuel to the already stretched building and construction sectors through selective spending and concession decisions which impact those sectors. The budget did provide important new expenditure in two social areas, aged care and disability support although there is some doubt about whether it has provided the framework for that spending to be effective, especially as regards workforce. The budget cannot be said to "build for the future". It has focused government investment spending on the technology and infrastructure of the past along with the mantra that we can hold back change; unfortunately the result will be that we may not reap the productivity benefits we could expect were government capital expenditure designed to facilitate Australia's acceptance of the international trends towards a carbon neutral economy and the design of an economy which supported that. This is a huge missed opportunity. Important sections of the private sector are already rising to the challenge and support from the federal government would unleash significant investment and energy to create transformative change. Instead we are locked into the "old" industries.

D


Stefanie Schurer - Comment

Under the assumption that "A" implies the best grade and "F" the worst - I assign the budget a grade of "D" if the aim was to ?secure Australia?s economic recovery and build for the future?. The budget does not include critical expenditure items that demonstrate investment in the future. I welcome the strong "welfare" elements of the budget, by supporting low- and middle-income earners, single moms, and families with children through the tax system. Resource allocations to the aged-care sector, mental health care, and child care are likely to be highly beneficial for social welfare. However, I am missing visionary long-term investments. I had hoped for a "New Deal" type of budget. Rather than just handing out subsidies to specific groups of society and keeping workers employed, I would have liked to see the Government commit to long-term investments in sectors that will generate jobs 10-30 years down the track, such as clean energy production, pharmaceutical research & vaccine production, communication technologies, and building research infrastructure & skills. It is surprising to see that no investments are made into universities at a time where the tertiary education sector is hardest hit through border lockdown and at risk of loosing its competitive edge. Given that Australia has been falling behind dramatically in its vaccination effort and ability to secure vaccination doses, I would have expected the Government to invest heavily in pharmaceutical research and vaccine manufacturing. The 2021 budget is built on the assumption that the Government's vaccination rollout will be complete by the end of 2021. At current rollout rates per week, it will take Australia's 30 more months to fully vaccinate its population. It is now time to open up vaccination to everyone who wants to. Because of low take up among those eligible, the Government is risking to waste many doses which expire within the next three months.

D


Ken Clements - Comment

E


- Comment

E


Uwe Dulleck - Comment

Compared to last year's COVID budget where the focus was on dealing with the crisis, this budget strikes me as a very political budget. Substantial expenditure items address current political crisis (gender equality), aged care, instead of considering structural reforms. With all the focus on recovery, I do miss a real focus on using this spending to get Australia future ready. That universities - with education being a major export of the Australian economy - not receive substantial support, can in my eyes be only explained by political considerations, and it likely will be costly to not only the university sector but the economy at large. While recovery is big in this budget, I see a lack of perspective of how to re-open the economy. Australia needs international tourists and international students to return. The strategies to achieve this are still underdeveloped.

F


Tony Makin - Comment

The 2021/22 budget sits incongruously with the sharp post-lockdown rebound of the economy and ignores future risks the spending splurge has created. True to form there has been a knee-jerk primitive Keynesian reaction to last year's COVID recession. But why remains a mystery in the absence of robust theoretical and empirical evidence to support the effectiveness of fiscal policy in open economies. See Makin (2018) The Limits of Fiscal Policy, Palgrave, for related discussion. As happened with the GFC, treasury's initial forecasts of the impact of the COVID crisis were wildly astray and far too pessimistic. And as with the GFC, this primed an unduly excessive fiscal response. The recession was treated as a conventional business cycle contraction when it was not. Unlike a standard collapse in private sector aggregate demand, the COVID recession was due to government-imposed lockdowns primarily affecting aggregate supply with side-effects for aggregate demand. As I wrote at the time it was as if the federal and state governments depressed a coiled spring that would naturally spring back of its own accord without the need for fiscal "stimulus", except for JobKeeper (better considered a supply side, not demand side measure). The unemployment that remains is not cyclical, but mainly structural in specific industries (eg travel and tourism). Ongoing budget deficits will put upward pressure on bond yields, appreciate the exchange rate and worsen competitiveness, putting expansionary fiscal policy at odds with monetary policy. The escalation of public debt will also seriously jeopardise Australia's credit rating. A credit downgrade would dent business confidence and deter domestic and foreign investment. It may not have great impact if domestic interest rates remain low, but this is increasingly unlikely as global/US interest rates rise due to higher bond yields and higher inflation abroad.

F

 

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