Would the Labour or Liberal Budget Policy be more effective?

The Liberal Budget

The 2020 budget presents an opportunity to take advantage of the cumulative effect of both the health and economic crisis. And the scale is staggering – a budget deficit of $213 billion for 2020-21 fiscal year, ~a decade or more before the budget returns to balance, and net debt sprouting at $966 billion, or ~44% of GDP.

With stimulus plan, after stimulus plan, after tax cuts and more tax cuts, the liberal government’s economic recovery plan aims to:

  1. Create jobs 
  2. Increase economic resilience 
  3. Create a more competitive and income-generating economy.

Let’s hope the 2020-21 labour budget boosts our -6.3% economic growth by… just a crumb?

The 2020-21 Budget includes $98 billion in response and recovery support, including $25 billion under the COVID-19 Response Package and $74 billion under the JobMaker Plan. JobMaker subsidises a “Hiring Credit” for each additional new job that is created for an eligible employee over the year. This $4bn plan aims to support 450,000 jobs for young people.

Specifically, 1bn for free-low cost training supports up to 340,000 training places, $1.2bn to subsidise apprenticeships and a $110 bn injection into infrastructure over the next 10 years.

This, along with the wage subsidy for apprentices and trainees will increase aggregate supply, hoping to result in non-inflationary economic growth.

The second stage of the income tax plan comes into play. An automatic cash increase for most low-middle income earners can be seen, as a result of increasing the upper threshold of the 19% tax bracket from $37,000 to $45,000, and the upper threshold of the 32.5% tax bracket from $90,000 to $120,000. A more equitable distribution of income and wealth? Let’s goooo.

We see the instant asset write-off growing again! Supporting SMEs, businesses with aggregated turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets. The deduction available for new depreciable assets hopes to assist SMEs struck by COVID-19 this year, and boost the competitiveness and resilience of the Australian economy.

Lightning can strike twice for Labour…

Just as the Hawke-Keating budget reforms helped guide Australia to economic recovery in the 90s, the current Labour budget response has strong potential to do the same. 

Anthony Albanese’s reply to the Federal Budget addressed serious issues with the current Australian economy and proposed reforms that will serve to deliver consecutive economic growth for the next 30 years.

The opposition’s counter-budget is traditionally shorter and less detailed than the government’s, but it certainly appeared to undertake more original and forward thinking ideas than the liberal party.

The flagship policy being the introduction of universal childcare subsidies that would see 90% of childcare costs being subsidised for most families. It would encourage thousands of women to re-enter the workforce, knowing that the cost of leaving their young in the hands of childcare professionals is covered.

The Grattan Institute argues the subsidy would foster economic growth and “increase lifetime earnings by $150,000 for mothers”.

It is commonly assumed that economic growth (i.e moving out of a recession) comes down to 3 p’s; population, participation and productivity. Firstly, this policy reduces the marginal cost of having an additional child and hence incentivising baby making. Secondly, mothers will no longer have to choose between looking after their kids and working, in turn boosting the labour force participation rate.

Another interesting Labour policy proposal is to overhaul the current electricity grid under a $20 billion “Rewiring the Nation” program that would modernise the electrical transmission network and create opportunities for clean energy to make up a higher proportion of Australia’s energy mix. The program would require a lot of steel and aluminium, all of which would be sourced from Australia.

This program would create thousands of jobs and ensure that we don’t lag too far behind the energy pioneering economies of the 21st Century. It would aim to address the issue of cheap but climate friendly energy that has been plaguing the halls of parliament for the past decade.

The last major attraction of the Labour’s budget response is a call to boost Australian manufacturing, which is particularly timely in this current state of fractured global supply chains. In particular, Albanese proposed that new trains, rail networks and military equipment all be made in Australia, furthermore improving the nation’s economic sovereignty.

Accompanying this is a mandate to ensure apprentices in the manufacturing industry have the skills necessary to complete federal funded projects, which would set our future manufacturing workforce up to be competitive on a global scale.