The Milky Bars are on him

Over half a century ago Douglas Copland described Australia as a milk bar economy. How much has changed, asks Alex Millmow IN PRESUMABLY his last budget before embarking on greater adventures it never seemed likely that Peter Costello would deliver a classic Tory fiscal document. Given all the economic superabundance, it was - as he admitted - an easier budget to bring down. It started with the tired old conjuror’s trick of announcing a huge surplus figure and closed with a fanfare of tax cuts all round. It’s a wonder he didn’t say, ‘The milky bars are all on me’. The budget’s bedazzling generosity to Australians might be tempered by the fact that it’s pitched towards the upper end of the income scale. For most of us it will mean a sandwich and two milkshakes once a week; for those on a six-digit-plus salary, a weekly three-course lunch at some swanky restaurant. The tax cuts and welfare-to-work programmes recall the observation of the great American economist, J.K. Galbraith, who characterised the argument from the right like this: ‘In recent years, the rich have not been working because they have had too little money, and the poor have not been working because they have had too much’. The truth is we all enjoy an increase in our wealth but the present tax system eroded that pleasure. This is why it is not liked by those who have to pay the most. Apart from the tax cut the budget will also be a windfall for the big end of town. Stockbrokers, fund managers and merchant bankers will be given the task - or is the bonanza - of managing the future nest egg of public servants. The so-called Future Fund, opened with an initial deposit from the Commonwealth coffers of $16 billion, will be supplemented by the privatisation of Telstra. The size of this gravy train boggles the imagination. Students will soon be asking, ‘How do I become a funds manager?’ While the treasurer openly lamented the number of beneficiaries on disability support pensions, he will not consign them, as he will new applicants, to the greater scrutiny of work tests. Equally, single mothers already receiving the pension will be quarantined from the new rules. For newcomers to either scheme the spur of poverty to force them back into the mainstream of economic life will apply. The mature-aged long-term unemployed will also be liable to the work-for-the-dole scheme. Four years from now, these welfare reforms will see people streaming on to the labour market. Securing meaningful jobs for them is in the lap of the Gods though an education program for employers discriminating in hiring might have been a useful complement here. But there are broader concerns about this magic pudding budget. It will inject consumption demand into the economy when the Reserve Bank of Australia would prefer to lower the tempo of economic activity. While households use the earlier ‘milkshake and sandwich’ tax cut to reduce debt, the $21 billion tax cuts projected to commence in July 2006 will rekindle consumer optimism. This will certainly scatter to the winds fears of a gathering slowdown in the economy. But we may have the situation where what Peter Costello give us Ian MacFarlane at the RBA takes away in the form of interest rate hikes. Much of this embarrassment of these rivers of tax revenue - and what to do about it - is due to companies wallowing in revenue from selling commodities abroad at record high prices. This is, of course, sparked by the locomotive force of China’s industrialisation exerting its impact upon our economy. But commentators are not confident that China can sustain the pace at which she is growing and there is huge international pressure on her to revalue her exchange rate. On that note, John Howard will recall how the much-touted resources investment boom of the late seventies came to nothing, yet higher living standards had already been predicated upon it. A long forgotten treasurer, R.G. Casey, inimitably summed up the predicament of an open, small economy like Australia as being like ‘swung along at the tail of the world cart’. Nothing has really changed. Nor has our propensity to idle away our resources in consumption. With all the talk earlier this year about infrastructural bottlenecks and capacity constraints holding the economy, and exports, back there is very little indeed in this budget addressing that problem. Sure, more spaces were created for technical training but universities received little extra. In 1949 the economist Douglas Copland characterised the Australian economy as ‘a milk bar one’ for its preoccupation with consumption at the expense of capital goods and productive inputs. All that’s changed is that those quaint milk bars have been replaced by convenience stores. • Alex Millmow is a senior lecturer in economics at the University of Ballarat. This article first appeared in the Canberra Times