Budget holds out little hope on jobs

August 26, 1992
Issue 

By Peter Boyle

On August 18, the Keating government brought in a federal budget designed to convince the public that the Australian Labor Party has returned to its old Social Democratic values.

But while the budget purports to give first priority to fighting unemployment, it predicts that, at the end of the financial year, official unemployment will still be around 10%.

Some 100,000 short-term jobs and "training" positions — mostly the latter — and mostly in marginal electorates — will be created by spending $1.2 billion on construction projects at the local government level, training programs and employer subsidy schemes.

However, cuts in public sector jobs will continue. In previous recessions in the post-World War II period, the public sector expanded to create more jobs. Indeed $1.6 billion worth of public assets are to be privatised and even more pressure will be placed on state governments to cut public sector jobs because their borrowing is to be further restricted.

Qantas and Australian Airlines, the Commonwealth Serum Laboratories, the McLeod Repatriation Hospital in Melbourne, the Snowy Mountains Engineering Corporation and shares in the Australian Industry Development Corporation are all to be sold off. In addition, the federal government's car fleet (worth $250 million) will be refinanced privately, boosting the business of finance companies.

Privatisation and asset sales — especially of the most profitable public enterprises — will ensure that future governments will be forced to continue to cut back on social services. Even with the $2.5 billion in projected asset sales, the government estimates a deficit of $13.4 billion. At the same time, the government will go ahead with its plan to give further tax cuts to corporations and the rich.

The defence budget is to be increased by $525 million, most of which will be spent on submarines, frigates, the Jindalee over-the-horizon radar project and the upgrading of airforce and army bases in northern Australia.

Other dubious spending includes $9.5 million to boost the government's capacity to intercept telecommunications and $3 million to produce a glossy, full-colour booklet profiling the 224 federal parliamentarians before the next federal election.

$1.6 billion will be spent on the severely overloaded public hospital service over the next six years, but this will be funded by an increase in the Medicare levy from 1.25% to 1.4%.

The budget does not appear to give many new subsidies to big business because most of these were announced in the One Nation statement in pped the Business Council of Australia, other employer bodies and conservative economic commentators from whingeing that the "animal spirits" of the private sector were not offered much. But the financial and share market response to the budget indicated that government policy has the silent approval of big business.

Despite attempts to find rhetorical differences with the Liberals before the federal elections, Keating's economic policy remains firmly within the framework of the economic "rationalism" now followed by both Labor and Liberal parties. Deregulation and privatisation remain the main thrust.

This recession is the longest and most severe since the 1930s depression, yet the Keating government is injecting proportionately less into the economy than the Fraser government did in the considerably milder 1983 recession. The deficit is the equivalent of 3.3% of gross domestic product, compared to 4.1% during the 1983 recession.

According to the Age's Keynesian economics editor, Kenneth Davidson, the net expansionary effect of this budget is even less than that of last year's federal budget. Last financial year, the budget deficit increased $11.2 billion from a surplus of $1.9 billion the previous year. But in the current year the rise in deficit is to be only $4.1 billion.

The deregulation of the financial sector carried out by Labor over the last decade restricts the ability of any government to implement Keynesian counter-cyclical measures without triggering a dramatic response in the foreign exchange market. In addition, if the government tries to boost the economy by spending up too big before Australia's main export markets recover, it risks a flood of imports and a blow-out in the current account.

John Hewson's reply to the budget was a call for a Thatcherite "solution" to current economic woes: more privatisation and deregulation, leaving it to the "free market" to fix things up. However, the experience of New Zealand and Britain indicates that this will be no real solution to most people. The New Zealand free market experiment inflicted high unemployment, low wages and a destruction of the welfare system. Britain had high unemployment continue through the last economic recovery and is slipping into recession again.

Keating's temporary reprieve for some of the unemployed is timed to fit the election schedule. If the domestic or international economy does not recover at the pace projected, even the measly 1% improvement in official unemployment figures could evaporate when the short-term job creation measures end. But the federal elections will be over by then.

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