Over the last few weeks, various media outlets have been predicting that the upcoming Federal Budget will see Treasurer Scott Morrison playing Santa Claus and handing out tax cuts and generous infrastructure project expenditure to keep businesses and individuals generally happy. This theme was reinforced by the Deputy Prime Minister, Michael McCormack, who last week was telling media it would be an “infrastructure spending Budget”. It’s a good message for the Minister for Infrastructure to sell, and, if correct, it would particularly assist the Nationals’ regional and rural supporters. However, it does represent a backtrack for both McCormack and the Government more broadly, who have both previously been at pains to reassure the public the budget would be in surplus of at least 1% GDP in the medium term. (The infrastructure-friendly budget discussion also means McCormack is also finally getting some press which is no doubt good for his profile as not too many people know a lot about our new Deputy Prime Minister, or the fact that he’s been appointed Deputy PM for that matter.)

Over recent years, there seems to have been media – and public – expectation that the Government will hand down budgets that are more on the generous side than not. Which is somewhat counterintuitive, because budgets, whether they are created by a government or a household, should contain some bad news. Budgets by their nature should display restraint.

Ever since the GFC, our Government has run a budget deficit. Australia has not had a technical recession since 1991/92 and has enjoyed great increases in economic growth and wealth for as long as anyone can remember. There was reason for stimulus spending post GFC and there is a case that in the early 2000’s infrastructure spending was lower than it should have been.

If the Government keeps on making headlines for popular spending and tax cuts, it will make it very tough to achieve a budget surplus, especially when we are starting from a deficit base! From the early talk, it looks like the Treasurer is relying on extra tax from our resources sector to get some new expenditure in while making sure the final budget figure doesn’t look too bad. Continually relying on, and then being let down by, the up and down tax take from the resource sector is not a great model for a country’s budget…

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