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The Myth of the 2020/21 Surplus

Scott Morrison’s belief that he will be able to produce a surplus budget by 2020/21 is either a pipe dream or a con-trick. It is simply not achievable.

And, to our collective relief, it is ignorance rather than good management, that will ensure it doesn’t happen. Notwithstanding the fact that a surplus budget is the last thing our economy needs now or then, it is government policy that will stop it from happening.

Morrison thinks giving tax cuts to the private sector will create jobs. It’s called ‘trickle-down theory,’ but like all theories, it will only become fact when proven so. There is a weak link in his theory and it is a vital one. He has no control over what happens to that extra money kept by the private business sector.

Morrison et al, are constantly boasting that they have created a jobs boom when in fact, the jobs created are simply proportionate to the increase in population. They occur naturally.

If there was a real jobs boom, there would not be 700,000 unemployed today, which as it happens, is the same number that were unemployed in September 2013 when this government came to office.

They haven’t created anything, but they will happily take credit for what occurs naturally through immigration.

In the meantime, they are more than happy to maintain a pool of 5% unemployed, which some OECD countries regard as full employment, to keep wages stagnant. But low wage growth restricts a nation’s capacity to grow. It limits workers’ capacity to spend.

So, the question should be asked: why would companies use a tax cut to invest when low wage growth inhibits workers ability to purchase more goods and services? Such investment would be counter-productive. Which begs the next question: what would corporate Australia do with the extra cash?

It might be used to invest and expand, or it might be used for share buy-backs, or just bigger executive bonuses. History, however, tells us that it is bonuses and share buy-backs that usually win out, but history also tells us that one in five companies don’t pay tax.

So, a tax cut offers nothing for them, no reason to invest, no reason to hire. So, the projected surplus in 2020/21 is a myth. Without wage growth which produces higher tax revenues and the promise of higher sales volumes and bigger profits, the only way Morrison could achieve a surplus in 2020/21 is to reduce government spending further.

That too, is counter-productive. When government spends less, one of two things happens. People spend less, or they take on more debt. We are already one of the top three privately indebted countries in the OECD.

The likely outcome is contracted growth, leading to recession. We have been on this path now for five years. It has been delayed because of our large immigration intake including 457 visa holders. It’s not rocket science.

So, when we hear Scott Morrison and Malcolm Turnbull spruiking tax cuts for business, we know it’s not designed for jobs and growth.

Is it possible that they have other reasons for wanting to give business breaks they don’t deserve?


21 comments

  1. listohan

    According to the ABS website we have lost more full-time jobs than the part-time jobs that have been miraculously created. Under the definition, the part time jobs could be for as little as one hour! No one seems to mention this despite the numbers being on the public record.

  2. Marcus

    Thanks John for another informative commentary on the economic incompetence of the political elite, in particular the profoundly inept LNP. Furthermore, as you would know a surplus is potentially very damaging to the economy, and in the current economic climate is not something to aspire to but to be vigorously avoided. To explain why, lets consider what a surplus actually means.

    In simple terms a surplus means the Government is taking in more money trough taxes, than it is spending. The implication of this is quite profound…as the currency ISSUER this means the Government is taking money OUT of the economy. It does not take a genius to work out this means less money in circulation and less spending which is like taking fuel of of of the tank, with the result being the economic engine slows and sputters. Economic activity reduces, and the economy shrinks.

    Far from “stimulating and strengthening the economy” it does precisely the OPPOSITE. Government spending = non-Government income, so the outcome of a Government surplus is less money in YOUR wallet. At a time of low growth, asset inflation, increasing unemployment, low wages, massive private debt (which is the real problem), and ongoing massive incoming immigration…does that sound like a good idea? No it does not. Keep in mind for BOTH the LNP and ALP, achieving a surplus is the mind-numbing mantra and they are in charge. Scary isn’t it.

    Luckily, particularly when it comes to the LNP, they are so incompetent they will not even achieve their own profoundly stupid goal. Yet, people still vote for them. Go figure.

  3. paul walter

    It as a heist and it is deliberate. The money is offshored and social infrastructure is cut to pay for the buccaneering.

    Its other purpose is intimidation, as the oligarchy challenges the flock to resist and people are cowed so that more democracy is lost through more “security” legislation.

  4. Frank Smith

    You are living dangerously, John. Scotty and Mal will immediately call up AIMN Management and have you Alberici’d for printing “an opinion”.

  5. Rod

    The Libs have been forecasting a Surplus just beyond the forward estimates every year they have produced a Budget, 4 years of evidence showing you can’t cut your way to a Surplus yet they still persist with their failed economics.

  6. Glenn Barry

    Whenever Sky fairy worshipper Scotty Morriscum says anything – it can be rejected out of hand without the need for any deliberation whatsoever.

    Now ponder, what degree of utterly incompetent leadership would give Sky fairy Scotty responsibility over the nations finances – TA DA…I give you Malcolm Turnbull.

    From the way it’s looking now, every time the LNP belllow about the fictional benefits of corporate tax cuts, the air they expend deflates their jumping Castle just that little bit more

  7. Kronomex

    “Is it possible that they have other reasons for wanting to give business breaks they don’t deserve?” Yes, donations, donations, donations and being welcomed with open arms as lobbyists…oops, employees, of big business with pay packets and benefits the common little oiks can only dream about as they buy their lotto tickets.

  8. Bacchus

    Frank Smith – “Scotty and Mal will immediately call up AIMN Management and have you Alberici’d for printing “an opinion”.”

    I’d love to be in the same room if Michael were to receive such a call! 😛

  9. totaram

    They are not inept or stupid, as many people think. Or, perhaps they are if they believe this drivel. The people (the puppeteers) who think up these ideas and the “justifications” for them, know exactly what they are doing. It doesn’t work as they say it does, but it reduces govt. revenue, which is the intention. Then with the cry of “debt and deficit disaster” and “the need to balance the books”, govt. expenditure on health, education, infrastructure and welfare, will be cut. In the USA they call this strategy “starve the beast” (govt.), “until it is so small that you can drown it in the bathtub”. Of course, it makes the ruling 1% richer and their power grows.

  10. Jordan Grant

    @rod
    Why on earth would we even want a surplus ? Their economics are failed but their failure to achieve a surplus is actually about the only silver lining here

  11. Rod

    Hi Jordan,
    Not that we want a surplus but just showing how inept LNP are in pursuing one

  12. John Kelly

    Frank Smith, oh how I would wear such a complaint as a badge of honour

  13. Glenn Barry

    https://lh3.googleusercontent.com/CqmsWq_FJGESVZx1m-lJYMbsUcVCmEDeHYdK2_sVYQ9H65v_4Gpu8LqoXqxp74IaJRRqrAq7oDNitGY5a57uxGfVJCZXQmi8oCylZuR4pa1Jnj3AFtjooG-aDJ0kPH5ht5RiixlvhAbnFOGEl2q-DwUDajjFkcTg9Xxc-Ubf9-lgpDXNa9OdX_WAzhDdHG7Ik5jhvv4p8MO8VJKp8jiWT3Lw46QTo8PvPeuG6S8ZfM7sRiOcrlWlQJDU3UcM6l9z4uES9zjxd_ZXDC3IPPSPWrZqgVFJwg45a0RivXYROd8tybwKA4P0k8X-jZrCbAevuvyeFciQ9KA5nYGuTvOUGiR0OMQUerUhOvNfJF8AJSqObNYnZKFxU5rQ5soF65hF4PvCfKcIOSXEGs6kouiRnubMoESqnxVTmrTUwyp4X2KVSeBWGVo4tnM6PR1GzT4rBw27gJfY8yNAkAMPoRG99WQrfhEeiXuj4sFGROU9sZCTJW7YtovBnOuMcJJkAsjQNk2AW5h_0syOzSiaxavZv4x1ichL20wJmccc6c8Ys2g6LNZM4hFb1AJeIyxwtHyb=w1278-h649

  14. Max Gross

    If it’s Morrison, it’s a lie. If it’s the LNP it’s a deluge of lies.

  15. Michael Taylor

    Bacchus, we’d only be in the same room if I were to join you in the cellar. 😜

    (Sorry, peoples, it’s an old joke between me and Bacchus).

  16. guest

    I see where Chris Mitchel, ex-editor at The Australian, is claiming that the ABC needs an economics expert. He writes this because Emma Alberici claimed that trickle-down economics (tax cuts for industry) has no evidence that it works.

    Mitchell himself, has he economics qualifications? Does he supply surefire evidence that trickle-down works?

    Well, of course not. That is not his aim. It is simply to criticise the ABC and to feed the rusted on who believe any bit of ideological rubbish he, the rest of the Murdoch stable and its muppets the Coaltion have to say on anything. It is an activity which parades as journalism.

  17. 245179

    The growing trend to ” casual,perm casual,part time, perm part time, seasonal,fixed term etc etc” concerns me. Many, many corporations are getting onboard with this employ. ( no sick pay,no penalty rates,no holiday leave) super..yes. Folks are employed yr after yr by this method.

  18. diannaart

    Keep up the most excellent work, John Kelly

    And a big thank you to commentators for thoughts, comment and links.

  19. listohan

    All members of the Drum panel on Monday, including a business woman, were all unimpressed by the LNP’s company tax policies. Catch it at https://goo.gl/ue57eD starting at 30:45

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