Life on the West Island - Booby traps

Shortly after the 2022 federal poll Life on the West Island observed that it was probably a bad election for Anthony Albanese to win. Awaiting him was a slew of booby traps set by the incompetent outgoing Morrison government, which had made many expensive election spending promises, both inside and outside the federal budget. Labor was sucked in to committing to honouring these pledges and is now having to live with the consequences of the economic damage they threaten to the nation.

Perhaps the largest of these unfunded boondoggles was around $400 billion for the hastily cobbled together AUKUS nuclear submarine deal, which is looking increasingly shaky as both Britain and the United States have cast doubt on whether these submersible war platforms can be delivered by 2040; hesitating to commit to them being built on the West Island; and hinting that the costs could blow out by further tens of billions of dollars. All that is without any sensible government analysis of whether nuclear submarines would actually bolster the nation’s defences or perhaps instead make the West Island a nuclear target and tie us in to any potential and unwinnable war with China.

Then there are the totally unjustified State Three Tax Cuts, due on the schedule set by Scott Morrison and Josh Frydenberg to be implemented from 1^st July 2024 at an estimated cost to the budget of at least $270 billion. At a time when we are constantly regaled about the “cost of living crisis” and the clear growth of the gap between rich and poor, these tax cuts would make the gap much wider. This is because they are targeted only at high income earners and offer not a single cent to the individuals or households which are struggling most with the inflationary spiral in living costs. Despite Labor’s pledge to honour these unjustified tax cuts, it is inconceivable that in the lead up to the next election it can survive if it goes ahead with a booby-trapped programme to make life worse for the vast majority of voters. At worst, it might delay the implementation of Stage Three cuts, but it may have to bite the bullet of being accused of breaking an election promise by either scrapping them completely or else recasting the package so that the benefits go to those who need them most, not to wealthy individuals earning $200,000 or more a year.

This week saw the fallout from another infamous pet programme of the Morrison government – pork barrelling. For years, the coalition promised massive spending on doubtful infrastructure projects, especially in marginal electorates and those they held. This was particularly reprehensible, because it is the states and territories which are actually responsible for building and delivering most infrastructure projects with the Commonwealth providing a relatively small proportion of direct funding for them.

Alarmed at massive cost over-runs on many projects and the lack of business cases for most of them, the federal government commissioned two in-depth reviews, and this week announced that it would not be providing federal funds for some, provoking howls of protest from potential beneficiaries of some of the pork-barrelling.

The politics and economics of these decisions were best explained in a common sense analysis by senior economic writer Michael Pascoe:

Contrary to just about every headline you’ve seen, the federal government’s infrastructure cutbacks do not come as a surprise to the industry and actually won’t make much of a dent in the massive spending underway.

The Albanese Government and headline writers are still caught up in the cheap trick Joe Hockey played in 2014 to disguise his slashing of infrastructure investment when the country and economy desperately needed it. It was a trick repeated by every subsequent Liberal Treasurer. Labor adopted the “$120 billion infrastructure investment” headline Treasurer Frydenberg left them as an election present, along with the much smaller type “over 10 years” – an average of $12 billion a year in dollars of the day.

For perspective, we invested $48 billion in transport infrastructure last financial year. Over the past 10 years we’ve invested $308 billion in roads, rail, bridges and harbours – and those dollars were worth considerably more than the $120 billion Canberra is promising to spend over the next 10 years. Yes, federal investment is important. No, it’s not as important as federal politicians looking for announceables like to make out. Contrary to just about every headline you’ve seen, the federal government’s infrastructure cutbacks do not come as a surprise to the industry and actually won’t make much of a dent in the massive spending underway

Treasurer Hockey invented the trick in his first budget, thinking of a big figure – $50 billion! – and adding up enough years of possible spending to get to it. In his case, it was six years. Treasurer Morrison (remember him?) repeated the con with a bigger figure – $75 billion! – but the small print ignored by nearly everyone was “over 10 years”. He was further cutting investment from Hockey’s $8.3 billion a year to $7.5 billion. Treasurer Frydenberg did lift the figure to $100 billion over 10 years in his 2019 budget and proceeded to tweak the nominal spend to $110 billion in the 2020 COVID budget and $120 billion for his election budget last year that is now Labor’s.

For all the argy-bargy with the states now about individual projects and the funding split, the reality is that the chaos of the Morrison Government (anyone for “carpork”?) added to overly ambitious state plans, at a time of high construction-cost inflation, meant a recalibration had to occur.

As respected economic analysts Macromonitor warned after an earlier budget headline “spending programs over a 10-year period should be considered indicative at best” – the real world can intrude on politicians’ election announcements. It just helps to keep some perspective about who really does most of the work and pays for it.

In the meantime, the West Island government is trying to disarm these financial booby traps laid out for it through the outgoing coalition’s mismanagement.