Contents
Editorial
Welcome to my in-depth analysis of Australia's economic landscape, where we examine short-term relief measures, economic growth, and budget surpluses through the lens of Modern Monetary Theory (MMT). In this exploration, I dissect the government's recent budget, shedding light on positive developments such as the modest increase in the base rate of social programs like JobSeeker, Youth Allowance, and Austudy—though still not as high as needed.
We also touch upon the projected economic growth rebounding from 1.5% to 2.75%, albeit with a cautious outlook due to the prevailing downward trend. Additionally, we delve into the challenges stemming from the government's fixation on fiscal responsibility and its implications for social spending and inequality.
Join me as we uncover potential solutions for promoting sustainable progress and fostering a more equitable future for all Australians.
Jericho Debunks Inflation Fears, Supports Raising JobSeeker Payments
In a recent series of tweets, Greg Jericho addresses concerns that raising the JobSeeker payment could lead to increased inflation in Australia. Jericho, one of the contributors to the Centre for Future Work Briefing Paper: Commonwealth Budget 2023-24, emphasizes that raising the JobSeeker payment would enable recipients to live with dignity and help them find work, as expenses like transport, phones, and clothing for interviews all cost money.
In one of his tweets, Jericho states, "... it will enable them to live with some dignity. Help them to find work - transport, phones, good clothes for an interview etc all cost money. It will not be a disincentive to work - do you think anyone wants to live ON the poverty line?."
The briefing paper highlights that the budget will boost JobSeeker payments for unemployed individuals over 55, mostly affecting women. It also mentions that some $4.6 billion is to be spent over four years on increases to working-age income benefits, translating to a $40 per fortnight increase. However, even with the increase, Jobseeker and Youth Allowance recipients will still remain in poverty.
Jericho explains that the growth in household disposable income due to the extra JobSeeker payment would be smaller than the growth observed in previous years. Furthermore, recipients are unlikely to spend on holidays or buy houses, two factors that have been major drivers of inflation. This supports his argument against the idea that increased JobSeeker payments would lead to inflation.
Lastly, if there were still concerns about the impact on inflation, Jericho suggests progressively raising the rate over six to nine months to dilute the effect. He concludes by urging policymakers to raise the JobSeeker rate and dismiss the notion that inflation is a valid reason not to do so.
Short-term Relief and Long-term Illusions: A Futile Attempt to Address Poverty in Australia
The Australian government's recent efforts to address poverty and economic inequality have been met with skepticism. The age-old moral quandary of whether to prioritize immediate financial assistance for individuals and families in need or focus on long-term investments to address the root causes of poverty has once again been brought to the forefront.
The government's attempt to increase support for programs like JobSeeker, Youth Allowance, and Austudy, along with a 15% boost to the maximum rates of Commonwealth Rent Assistance, may provide temporary relief to a few. However, these short-term measures barely scratch the surface of the systemic issues that perpetuate poverty and inequality. Critics argue that the government's actions are driven more by political expediency than a genuine concern for the well-being of its citizens.
Regarding the increase in the base rate, Shirley Jackson, the director of the Centre for New Industry at Per Capita, wrote in the Guardian, "While it is welcome to see any increase in the base rate, this is a very modest amount that disappointed many. However, the government’s response to the inquiry into Workforce Australia is due to hand down its final report in September and offers an opportunity for deeper reform."
Furthermore, promises of long-term investments targeting education, job training, and affordable housing seem like lofty ideals that may never materialize or create meaningful change. The government's failure to enact genuine policy reform raises doubts about its commitment to address the root causes of poverty. Instead of addressing the structural issues that contribute to poverty and inequality, the government appears to be more interested in maintaining a facade of progress.
The situation is further complicated by the government's insistence on fiscal responsibility, which critics claim is a smokescreen to justify inadequate social spending. The focus on maintaining a balanced budget and avoiding deficits may serve the interests of a select few while millions of Australians continue to struggle with poverty and economic inequality.
As the moral quandary persists, it becomes increasingly apparent that the government's approach to poverty reduction is superficial and ineffective. The short-term relief measures provide little more than a band-aid solution, while the promises of long-term investments remain unfulfilled. The government's priorities appear to be misaligned with the needs of its citizens, leaving the most vulnerable to bear the brunt of the consequences.
In the end, the government's commitment to addressing poverty and economic inequality in Australia will be judged by its actions, not its rhetoric. Genuine progress will require a shift in priorities, a willingness to invest in long-term solutions, and a recognition that the moral responsibility to support the well-being of all citizens outweighs any perceived obligation to maintain a balanced budget. Until that happens, the moral quandary will continue to haunt the nation.
Economic Growth and Recession: The Delicate Balancing Act in Australia's Future
The Australian economy is at a crossroads, with the risk of slipping into a per-capita recession looming large. The government's recent budget forecasts suggest that the situation may not be as dire as it seems, but the path to sustainable economic growth remains uncertain. As the country grapples with this delicate balancing act, the question of how to stimulate growth and avoid recession becomes more pressing.
According to Peter Martin, Business and Economy Editor of The Conversation and a Visiting Fellow at the Crawford School of Public Policy at the Australian National University, the economic forecasts in the budget suggest that the coming per-capita recession won't turn into an actual recession. He states, "Economic growth is expected to climb from an ultra-low 1.5% in 2023-24 to a still-low 2.25% in 2024-25 and then to 2.75%."
However, these modest growth projections do little to dispel concerns surrounding the long-term health of the Australian economy. The effects of a per-capita recession, characterized by stagnating wages, rising unemployment, and sluggish productivity growth, can still have a significant impact on the lives of everyday Australians.
To avert a full-scale recession and stimulate economic growth, the government must consider a multifaceted approach that includes targeted investment in infrastructure, education, and research and development. Additionally, policies that foster innovation and entrepreneurship, along with measures to address income inequality and support disadvantaged citizens, can contribute to a more inclusive and robust economy.
The challenge lies in striking the right balance between short-term relief measures and long-term investments in growth and development. The government's focus on maintaining fiscal responsibility and a balanced budget has been met with skepticism, as critics argue that it may stifle much-needed investment in essential social services and initiatives that could stimulate economic growth.
As Australia faces the delicate balancing act of avoiding recession and promoting sustainable economic growth, the government's ability to navigate these challenges will determine the nation's economic trajectory. It is crucial for policymakers to prioritize strategic investments in growth and development while ensuring that the most vulnerable citizens are not left behind. Only by striking this balance can Australia forge a path towards a prosperous and inclusive future.
Budget Surpluses and Poverty Reduction: A Mirage in the Fight Against Inequality
Australia's recent achievement of its first budget surplus in 15 years has brought to light a moral quandary that exposes the government's lack of commitment to genuine poverty reduction. The debate over whether to increase social spending using the budget surplus or maintain the surplus for the sake of fiscal responsibility highlights the government's misplaced priorities.
The allocation of additional funds to social programs and support services using the budget surplus may seem like a step in the right direction, but it is a drop in the ocean compared to the magnitude of the problem. The government's insistence on fiscal responsibility and maintaining a balanced budget serves as a convenient excuse for not investing enough in poverty reduction. As a result, the moral quandary remains unresolved, and millions of Australians continue to grapple with poverty and economic inequality.
Antipoverty Centre spokesperson and Austudy recipient Jay Coonan's perspective on this issue is clear: "Surplus or no surplus, it doesn’t matter. What matters is that people have a home, can eat and can keep themselves warm this winter, but this government has shown that it is ready to leave people behind. We will not welcome poverty like the other organisations, unions, businesses and whoever else strangely accepts poverty. We will fight it, as we have done and we won’t stop until those who profit from this constructed misery are held accountable."
The government's choice to allocate a portion of the budget surplus towards social spending while maintaining a fiscally responsible approach appears to be a half-hearted attempt to appease critics without truly addressing the problem. The focus on short-term relief and maintaining a budget surplus overshadows the need for systemic change, leaving the moral responsibility to support the most vulnerable members of society unfulfilled.
The moral quandary is further exacerbated by the government's reluctance to acknowledge the structural issues that contribute to poverty and inequality. Critics argue that the government's focus on fiscal responsibility and maintaining a budget surplus is a smokescreen to justify inadequate social spending, which ultimately perpetuates the cycle of poverty and inequality.
To genuinely address the moral quandary, the government must reassess its priorities and commit to investing in long-term solutions that tackle the root causes of poverty and inequality. This may include comprehensive reforms in areas such as education, job training, affordable housing, and healthcare, as well as measures to address income inequality and systemic discrimination.
The government's current approach to poverty reduction, characterized by short-term relief measures and a focus on maintaining a budget surplus, has proven to be inadequate in addressing the moral quandary at hand. Until the government is willing to prioritize the well-being of its most vulnerable citizens over fiscal responsibility, the moral dilemma will persist, and millions of Australians will continue to suffer the consequences.
The moral quandaries surrounding poverty and inequality in Australia highlight the need for a fundamental shift in the government's priorities and approach. The current emphasis on fiscal responsibility and maintaining a budget surplus fails to address the pressing moral responsibility to support the most vulnerable members of society. Until the government is willing to prioritize long-term solutions and systemic change over short-term relief measures and fiscal optics, the moral dilemmas will continue to plague the nation, and the fight against poverty and inequality will remain an uphill battle.
Budget Betrays Battlers
On May 9, 2023, the Australian Government unveiled its latest fiscal statement, also known as ‘The Budget.’ Regrettably, it ensures increased unemployment and a further decline in living standards for disadvantaged Australians.
The Government announced a small fiscal surplus as a supposed achievement, prioritizing it over addressing the growing challenges faced by the nation’s poor, the strained public health system, and the urgent need for climate action. This focus on fiscal surplus is compounded by the Government’s strategy to boost consumption expenditure through credit growth, an unsustainable approach given the current context of record household debt levels and interest rates significantly higher than a year ago.
In the words of MMT economist Bill Mitchell, the budget represents:
“a deliberate act of sabotage of living standards for disadvantaged Australians. All the hype was about the minuscule fiscal surplus that was announced as if it is some sort of badge of honour that politicians aim for.”
The sectoral balances equation, a fundamental concept in Modern Monetary Theory (MMT), highlights the relationship between the government sector deficit, non-government sector surplus, and external balance.
Current government estimates indicate that Australia’s terms of trade will experience a massive contraction in 2023-24 and a further fall in 2024-25, pushing the external balance back into deficit. This shift in the external balance will pressure the private domestic sector, which is already struggling with unsustainable debt levels.
“… the Government handed out some dollops of cost-of-living relief to low-income families – a few pennies in the scheme of things. But while recording a surplus they still refused to lift the unemployment benefit recipients above the poverty line and ensured there would be more of the same forced to live in poverty. The priorities are all wrong…”
The fiscal statement forecasts indicate that unemployment is set to rise significantly by 2025. It is disheartening to see the Government’s priorities misplaced, as they have refused to lift unemployment benefit recipients above the poverty line, leaving a growing number of jobless workers to struggle. The Government has provided some cost-of-living relief to low-income families, but Mitchell’s quote highlights that this is a drop in the ocean compared to the scale of the problem.
The unemployment rate is predicted to increase by 0.7 points by 2025. According to economist Arthur Okun’s rule of thumb, To maintain a steady unemployment rate, the GDP growth rate should match the combined growth rates of the labour force and labour productivity. Based on these assumptions, unemployment will likely rise from 507,000 in March 2023 to around 685,000 by June 2025, resulting in a 4.5% unemployment rate. This scenario, engineered by the Government, is alarming, especially when combined with a fiscal surplus.
Currently, a single unemployed person in Australia is $181.25 per fortnight below the poverty line; therefore, the current benefit level must be increased by 26% to meet the poverty line.
The Government’s decision to raise the rate by only $40 per fortnight has caused widespread concern. Despite calls for a more significant increase, this paltry amount means that jobless workers will still be $141 per fortnight below the poverty line. It is unacceptable for the Government to add 180,000 more jobless workers without providing adequate support to those in need. This decision must be revisited, and a more substantial increase must be implemented immediately.
As Richard Dennis, Executive Director of The Australia Institute, points out,
“Since the stage three tax cuts were announced, we’ve had COVID, a war in Europe, the highest inflation in ages, and the biggest fall in real wages.”
Despite these significant challenges and the urgent issues of climate change and inequality, the Government’s budget remains focused on maintaining the status quo, adopting a “Steady As She Goes” approach.
Richard Denniss also notes, "While the surplus was a surprise to some, to be clear, the surplus came because of what the world economy did to Australia, not because of what Jim Chalmers did to the budget." This statement emphasizes the role of external factors in the fiscal surplus rather than the Government's policies.
The Australian Government’s performance in addressing the needs of its most vulnerable citizens is failing. However, it must be acknowledged that the prime minister’s assertion that the most recent budget did not neglect anyone distorts the difficulties encountered by numerous Australians.
Moreover, the Government continues its massive fiscal contraction. The Government’s reduced pandemic support in 2021-22 signalled a move towards austerity. As a result, the economy contracted by 1.6% of GDP, with a small fiscal surplus of 0.2% of GDP recorded.
Experts predict that the reduction in government expenditure, combined with the Reserve Bank of Australia’s 11 rate hikes since May 2022, will likely result in a drop in GDP growth and a rise in the unemployment rate.
The Government’s claims of providing a $14.6 billion cost-of-living relief package targeted at low-income workers and their families are undermined by the fiscal contraction and the increase in unemployment rates. Such a move does little to address the root causes of poverty and inequality in Australia.
In conclusion, the Australian Government's budget decisions have prioritized a fiscal surplus at the expense of the nation's most vulnerable citizens. With unemployment rates set to rise and the ongoing challenges of climate change and inequality, it is crucial for the Government to reassess its priorities and focus on protecting the well-being of all Australians. As Richard Denniss pointed out, external factors played a significant role in the budget surplus, and it would be wise for the Government to use this opportunity to address the urgent needs of its people rather than maintain the status quo.
If you enjoyed this post, let me know if the links at the top worked, and please consider buying me a coffee by pressing the button below.
Each morning, The Sample delivers one compelling article tailored to your interests. The Sample scours blogs and newsletters to find the most insightful content on the topics you care about, then send you the best article to read with your coffee. If you enjoy what you read, you can subscribe to the writer or publication with one click.
The Sample is your daily window into the ideas and conversations shaping the world. Let us be your bespoke guide to the internet—sign up now to start reading.