Budget 2022

I have a hard time seeing how Budget 2022 is consistent with the new fiscal rules.

In shifting from a net debt target to a net debt ceiling, they added a requirement that budgets normally provide surpluses. It's the old Keynesean fiscal macro kind of idea: run small surpluses in normal times to build up padding for large deficits in bad times.

And it has the same political economy problem that this kind of thing has always had. Government prefers to ratchet up spending. The old net debt target helped to constrain against that. The new debt ceiling won't, until we hit it. 

So Treasury warned that the new setup required greater focus on fiscal discipline to make sure that dollars provide value for money. A "things must at least pass CBA" rule could take the place of a net debt target in preventing budgets from blowing out.

And yet.

We get hundreds of millions for cash for clunkers and piles of other climate initiatives and subsidies to corporates targeting emissions already covered by the ETS cap. 

We get an extension of the road user subsidy which makes no kind of sense. 

Instead of inflation-indexing the tax thresholds, the government gives a handout to lower-income households equivalent to the extra tax that was stolen from them through inflation pushing about $5000 in earnings from the 10.5% band into the 17.5% band - and packaged as government largesse rather than compensation for a small bit of the accumulated inflation theft. 

Government is running a substantial deficit while the economy is overheated. There's a strong positive output gap. Even on old Keynesean approaches, you're not supposed to do that. 

And think about some of the other ratchets that they've now set up.

They've adjusted one benefit setting that has been a bugbear for child poverty advocates for a long time. If you're on a sole parent benefit, child support payments from the non-custodial parent mean your benefit is clawed back. 

Why would they do that? Sounds mean right? 

The idea underlying it is that the government wants to target support, as much as possible, to those who don't have other means of support. So say that one uninsured parent dies in a car wreck and the other parent, who wasn't in the labour force before, winds up in a hard spot. The government wants to provide more support for that child than for a child where there's additional support coming in from a non-custodial parent. 

So they claw back some government support in the case where the non-custodial parent is able to provide support. That means government can afford to provide a higher baseline level of assistance, before clawbacks.

Now there can be arguments around administrative messes - if the government is not good at enforcing child support payments, or about ensuring that those payments get reported, then the system can encourage informal payments, or discourage all child support payments.

But in-principle, the setup isn't crazy. It at least tries to make sure that more money goes to kids in worse situations when there's a fixed pool of money available for support. And even if your political position is that that pool should be doubled or tripled, you would still do better with that kind of targeting if you wanted to make sure that the money went to where need was greatest.

They got rid of that.

So what's the predictable effect in a couple of years? A John Campbell special that will highlight the grave disparities facing sole parents who have no support as compared to those sole parents who receive child support payments? Is it fair that the kid whose parent died, or whose non-custodial parent has no income, has such worse circumstances than the kid whose non-custodial parent provides a lot of support? And then we run the ratchet again. Someone will recommend supplementary payments where there isn't that support, which will require monitoring and abatement when there is support, and then complaints about how that system runs and demands that the supplementary payments go to all parents, and we get to play the cycle again. 

The Dom wanted a short piece from me yesterday afternoon. I didn't attend the embargo this year, but pulled this together shortly after the embargo lifted. I hit on some of this. 

I wonder if there's anyone left in Treasury who would regret the new fiscal rules or whether all of that cohort left a decade ago. They should regret the new fiscal rules. The only real problem the rules work to solve is ensuring that debt targets don't unduly hinder infrastructure spending that does pass cost-benefit - and that problem would better have been solved through revenue bonds financed from fees or charges on the beneficiaries of the infrastructure, and separated from Council and Crown main balance sheets.