RUBY:

Morning, Paul. How are you?

PAUL:

Good morning, Ruby. Well, I'm pretty well, and we've got an enormous thunderstorm happening around us. You can probably hear the rain right now.

RUBY:

Well, we'll live with the rain. Are you ready to get going?

PAUL:

Yep. I’ve got my raincoat on.

RUBY:

Okay.

**

RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

The Federal Government’s budget might contain some big spends... but Scott Morrison and Josh Frydenberg are facing accusations the money isn’t going to the right places.

In his budget reply speech last night Opposition leader Anthony Albanese outlined his response to the economic crisis, and unveiled some new policies.

Today, columnist for The Saturday Paper Paul Bongiorno on the budget and how the political battlelines between the major parties are being drawn.

**

RUBY:

Paul, the dust is starting to settle on the government's pandemic budget. The numbers are pretty staggering; a deficit of over 200 billion dollars, debt set to hit a trillion dollars, and big spending programmes. Tell me, what do you make of it all?

PAUL:

Well, Ruby, Josh Frydenberg unveiled the sort of budget Liberal treasurers normally reserve for the eve of elections. But I have to tell you, even Peter Costello's spending sprees in the Howard years have been dwarfed by this one. The sheer size of the numbers suggests to seasoned observers that the government only half believes its hope that recovery is underway and Australia is up to the task, to quote the Treasurer's budget speech. This week, the battlelines for the next election were being clearly drawn, whenever it’s held. But such is the alarm in Liberal ranks about the scale and depth of the crisis, some believe Morrison won't wait until next year to pull the starter's gun.

RUBY:

So, Paul, what are those political battle lines? What is the backbone of the tension between Labour and the Coalition over this budget and also the government's economic policy more broadly?

PAUL:

This week there was a testy exchange in the House; Morrison bristled at Labor leader Anthony Albanese's question, asking if the recession would be worse because of the Prime Minister's policy decisions.

Archival Tape -- Anthony Albanese

“Won't the Morrison recession be longer and deeper because the Prime Minister's cuts to JobKeeper, JobSeeker and wages are leaving businesses and workers behind?”

PAUL:

The PM repeated what he told his nervous politicians earlier in the joint party room, and he sent the boot firmly into Labour's management of the last economic crisis. And I must say, he did a bit of rewriting of history at the same time.

Archival Tape -- Scott Morrison

“...Mr Speaker, during the global financial crisis, the global economy fell by 0.1 percent. So what our government is facing is 45 times more severe than when those opposite thought the response was to build overpriced school halls, set fire to people's houses and send cheques to dead people and pets, Mr Speaker!”

PAUL:

The Prime Minister was almost Trump-esque with his dismissal of Labour's record and his hyping of his own.

Archival Tape -- Scott Morrison

“That's not how you manage a crisis, Mr Speaker. You manage a crisis with the strength in responsible economic management and the responsiveness and the certainty that our government has provided over these many past months, as we have done. And they can jeer all they like, Mr Speaker…”

PAUL:

The trenchant hyperbole is the sort of rhetoric, Ruby, you hear in the heat of an election campaign.

RUBY:

Mmm interesting. So how was the budget received, Paul, in the few days that stakeholders have now had to start going through the details?

PAUL:

Well, business is over the moon with the unprecedented tax concessions it's being offered...

Archival Tape -- Jennifer Westacott

“Those million people who are out of work need a business to be up and going again. They need a business to be investing again.”

PAUL:

Business Council chief Jennifer Westacott says it's the right budget for the right time.

Archival Tape -- Jennifer Westacott

“This is the right budget at the right time to turn from spending on support to spending on job creation…”

PAUL:

Unsurprisingly, she was supportive of the billions and billions being showered upon business, and she also supported, of course, the personal income tax cuts.

Archival Tape -- Jennifer Westacott

“We've got to get money back into people's pockets so they start spending so they start creating demand that will create jobs.”

PAUL:

But Ruby, no matter how generous the concessions offered are, business will be wary to invest if the demand is not there. And that demand, I have to say, has been asphyxiated by the virus, and the restrictions, lockdowns and shutouts in place to contain it. It's a vicious circle, really, that can't be broken merely by supply side measures. You know, customers simply can't be conjured up for goods and services they can either live without or can't afford.

And even if we take the government's preferred view of the world, people through the income tax cuts will be given the chance to spend their own money. They may choose not to spend it. But to save it. In fact, we've got the highest saving rate since 1974. So that's hardly encouraging for the hoped for stimulus in the current circumstances.

RUBY:

OK. So businesses are obviously happy with the money that they're being promised. And no one seems too concerned about the size of the deficit, Paul?

PAUL:

That's certainly right, Ruby. Labor is not quibbling with the massive size of the government's borrowing and spending, but rather the effectiveness of it. And on Thursday, in his budget reply speech, Albanese outlined an alternative plan for how the country should navigate this crisis.

RUBY:

We'll be back in a moment.

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RUBY:

Paul, what is the opposition's main critique of this budget and what alternatives are they proposing?

PAUL:

Well, Anthony Albanese last night in his budget reply, not only shone a spotlight on where the government's response failed millions of Australians, but outlined alternative ways to spend the billions of borrowed dollars.

Archival Tape -- Anthony Albanese

“We have a once in a generation chance to rebuild our economy and our country for the better. To launch a recovery that delivers a stronger, fairer, and more secure future for all Australians. This budget fails the test.”

PAUL:

One key policy Labour's keen to talk about to differentiate itself from the government is childcare. Now, while childcare didn't get a mention in Frydenberg’s budget speech, it was a focus for Labor, with a new proposal for free childcare for low income earners.

Archival Tape -- Anthony Albanese

“Tonight I announce that a Labor government will from 1 July 2022: remove the annual cap on the childcare subsidy, eliminating once and for all the disincentive to work more hours. And we will increase the maximum childcare subsidy to 90%...”

PAUL:

Albanese also outlined a proposal for a permanent rise in JobSeeker, a comprehensive climate policy for cleaner and cheaper energy, and a plan to address the crisis in aged care.

Archival Tape -- Anthony Albanese

“Too many older Australians are lonely prisoners of a broken aged care system. Facilities run for the highest profits at the lowest standards…”

PAUL:

On the big macroeconomic issues, though, Labor and the government are aligned; they both support the personal income tax cuts, and they're willing to spend big. The difference is, as we've been saying, what to spend it on.

RUBY:

Right. So Labor is backing the tax cuts and it has said as well that it's inclined to support these huge multi-billion dollar incentives for business. Why is that?

PAUL:

Well, a couple of reasons, I think. Labor doesn't want to give the Prime Minister grounds for any claim it was obstructing key measures and therefore was a threat to the well-being of the nation - the sort of argument a Prime Minister can take to convince a Governor-General to call an early or a snap election. That's one reason. I think the other reason is because of the times and the straits that the nation's in and the mood of the electorate.

So that's why the opposition didn't take the bait offered by Morrison when he rolled up the government's massive and expensive tax measures in one big bill. It did support the almost 18 billion dollars worth of income tax cuts for low and middle income earners, and a 33 billion dollar business package. Quibbles, in a sense, were minor, given that the opposition itself had called for the second round of the tax cuts, and at the last election had an investment allowance policy for business instead of the corporate tax cuts the Liberals were offering. But Labor's policy, Ruby, was a minnow compared to the huge package now on offer.

RUBY:

Mm. Both the tax cuts and the business package have been criticised by some economists for not really providing the kind of long term structural reform that's needed to set the economy up for life after the pandemic - can you tell me about what's been said?

PAUL:

Well, Ruby, among the crowd who've been releasing analysis of the budget this week, we have work from the Australia Institute, and it found that the tax cuts announced in the budget could have been more helpful than the Treasury's forecasts. Based on applying Australian Bureau of Statistics data on employment intensive industries, the Institute says the spend on the tax cuts could have created 160,000 jobs if it was directly invested in areas like childcare, healthcare and aged care, rather than the 50,000 jobs the government and Treasury points to.

RUBY:

Paul, both the government and Labor's plans rely on some fairly big assumptions about what the next few months and also the next few years look like. So should we be looking at all of this with a degree of scepticism, given how uncertain everything is at the moment?

PAUL:

Well, in the budget papers themselves, Treasury says, and I'm quoting, ‘how the pandemic will play out and its effects on communities and the economy are highly uncertain.’ The documents also say there are large upside and downside risks associated with the forecasts. The upside risks assume the COVID-19 is controlled more quickly, confidence has restored, international borders are opened, and there's an earlier rollout of vaccine from July next year.

It says this could lead to a 32 billion dollar boost to the economy and economic activity in the following financial year. However, the downside risks are for more infection outbreaks, and reimposition of severe containment measures that could see a 55 billion dollar hit to economic activity every bit as devastating as the first wave earlier this year. So Ruby, Treasury says it's like we're in uncharted waters without a compass.

RUBY:

And so do you think that Scott Morrison is going to wait for more certainty around all of those potential upsides or downsides before making a final call on an election?

PAUL:

Well, look, I don't think the Prime Minister's panicking at this stage, but he is a canny politician. And you have to remember that we had an October budget rather than a May budget because Morrison and Frydenberg were hoping and waiting that something good would come around the corner. But I've got to say that if the indications are... if the signs are and I'm hearing this from within the government, that things are actually going to get a lot worse, that that downside scenario is more likely than the upside, one...then I'm pretty sure he'd rush out to Government House and ask for an election.

RUBY:

Paul, thank you so much for your time today.

PAUL:

Thanks, Ruby. And the rain has stopped.

RUBY:

Good timing.

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RUBY:

Also in the news today…

Arts degrees are set to double in price after the Senate voted to support the government’s higher education funding changes yesterday.

Under the changes, the cost of a social sciences degree will go up while some courses like nursing, mathematics and teaching will become cheaper.

The bill passed with the support of One Nation and the Centre Alliance.

And NSW recorded another 8 locally acquired cases of coronavirus yesterday. Most were linked to a growing cluster in the city’s west. The government has called for more people to come forward for testing to help contain the outbreak.

**

7am is a daily show from The Monthly and The Saturday Paper. It’s produced by Ruby Schwartz, Atticus Bastow, and Michelle Macklem.

Elle Marsh is our features and field producer, in a position supported by the Judith Neilson Institute for Journalism and Ideas.

Brian Campeau mixes the show. Our editor is Osman Faruqi. Erik Jensen is our editor-in-chief.
Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio.

New episodes of 7am are released every weekday morning. Subscribe in your favourite podcast app, to make sure you don’t miss out.

I’m Ruby Jones, see you next week.