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Treasurer Josh Frydenberg framed the 2020 budget as a plan for Australia’s recovery from the Covid-19 pandemic, but it could also open the way for an election in the second half of next year. By Karen Middleton.

Budget primes Morrison for an early election

Prime Minister Scott Morrison and Treasurer Josh Frydenberg during question time on Thursday.
Credit: Sam Mooy / Getty Images

In a budget crisis – when money is no object, but speed is crucial – it can be instructive to see where and when the dollars flow, and who misses out.

The spending graphs in Budget 2020 are skyscraper numbers that can obscure what’s being knocked down and not being built. But the choices in this recovery plan are also statements in themselves.

There are necessary billions to stimulate the economy: a wage subsidy scheme for apprentices and the young unemployed, two $250 handouts for pensioners and other welfare recipients, $1 billion over two years on local roads and infrastructure, and a $27 billion investment incentive allowing most businesses to completely write off purchases for the next two years.

The measures contribute to a record deficit of $213 billion. Net debt is forecast to hit $700 billion this financial year and reach just under $1 trillion by 2024.

But among the dizzying figures is spending that reveals the government’s priorities, and its possible election timetable.

The budget papers reveal another $1.5 billion is earmarked to be spent before next June and $2.8 billion more in the months following on “decisions taken but not yet announced”.

Over the next four years there are more than $6 billion in commitments being shrouded from view.

The government opted not to resolve the fate of its JobSeeker unemployment benefit in this budget, declining to say if it will return to the level of Newstart, which observers across the political spectrum say was too little to live on.

While the undisclosed amounts appear too small to fund a permanent boost to JobSeeker, they clearly indicate something is coming in the second half of next year.

A general election is not due until 2022 but can be held from next July.

The benefits of a year-long extension of the existing tax offset will not be felt until July. The bonus of up to about $1000 accompanying the next round of tax cuts, brought forward and backdated to July this year, will arrive with next year’s tax returns.

The end of next year will also be crunch time for a Covid-19 vaccine. The budget’s forecasts are all predicated on achieving one by December 2021, and on the twin assumptions that employers will respond to the stimulus measures by hiring a million workers and that consumers will spend.

If there is no vaccine next year, it could be a very different picture.

Small measures buried in the budget’s fine print highlight other underlying agendas.

Foreigners who are neither business investors nor have needed skills continue to be a low priority – a sentiment reinforced by the government’s pandemic external border closure.

As well as saving almost $1 billion over the next four years through cutting the humanitarian migration intake by 5000 places, the government has reduced the financial support available to people applying for asylum by almost $20 million.

The cut to status resolution support services (SRSS) is not made explicit in the budget papers. It is only revealed by comparing numbers in this year’s budget and the last.

The cuts affect people on bridging visas who are unable to work and those in community detention, and reflect moves to shift people off the support payment and restrict eligibility. It is currently about $35 a day and supports them while they wait for decisions on refugee applications. While most arrived in the past five years, some have been here since 2009.

In 2017-18, $139.8 million was allocated for income support payments and administration. Last year, it was $52.65 million but only $39.5 million was spent. This year that has been cut to $19.6 million.

The Department of Home Affairs told The Saturday Paper that the program is “demand driven” and that no changes had been announced.

Asylum seekers who can work will be competing with the 800,000 people who have already lost their jobs this year. Unemployment is forecast to rise from 7.1 per cent to 8 per cent by Christmas, before falling to 6.5 per cent in 2022.

Within its migration program of 160,000 places, the government has increased the number of family visas by almost 30,000. Most of those will be partner visas, with priority going to those already here and those whose sponsor lives in regional Australia.

But people wishing to sponsor foreign partners will face character checks and must be approved before a visa application can be lodged. The government says this is to protect partners from exploitation and violence.

From late next year, both partners must also be able to speak “functional” English before a permanent visa will be approved.

Having already uncapped the hours of subsidised English classes available to migrants, the government will require couples without adequate competency to undertake at least 500 hours of free classes before granting a permanent partner visa.

“This is designed to help people be more involved in Australia when they come to Australia and to have those English-language skills so they can maximise and fulfil their life in Australia,” Prime Minister Scott Morrison told Radio 2GB on Thursday. “So, I think it’s pro-migrant but it’s also pro-Australia, even more importantly.”

Some see the change as the de facto return of the controversial English-language test that was a feature of the White Australia Policy.

Refugee Council of Australia chief executive Paul Power says there are many Australians whose partners would not qualify.

“It’s really disturbing and, given Australia’s past history on English language tests as part of its immigration program, it’s more than unfortunate,” Power says. While it was beneficial for people to learn to speak English, this would “favour people from English-speaking countries over people who are not from English-speaking countries”. “What kind of country do we want Australia to be?”

Economist Saul Eslake says applying English-language requirements could rule out future migrant entrepreneurs.

“No more Frank Lowys or anyone like that who can’t speak English,” Eslake says, citing the Australian–Israeli tycoon of Slovakian–Hungarian background who built the Westfield shopping centre empire.

There is also a new stricture for people seeking to challenge the government’s migration decisions.

Extra money for the Family Court and Federal Circuit Court is being partially funded by increasing migration litigation fees – an apparent response to the government’s frustration over having its decisions on migration cases challenged in court.

In a recent judgement, Federal Court justice Geoffrey Flick described acting Immigration minister Alan Tudge’s behaviour as “criminal” for ignoring an Administrative Appeals Tribunal ruling to release a man from detention.

Other measures in the budget also read as retribution.

Auditor-General Grant Hehir had written to the government appealing for an increase to meet his agency’s workload. But he has caused the government pain this year with searing criticisms of the Community Sport Infrastructure Grant program and the $30 million overspend on land near the new Western Sydney airport site. Hehir’s request was met with a significant cut.

The Australian National Audit Office has had its budget slashed by a further $5 million over the next four years, following cuts totalling $17 million since 2016.

Similarly, the independent Australian policy institute China Matters, established to foster better Australia–China relations, has had its concessionary tax status abruptly removed in the budget, meaning donations to the organisation are no longer deductible.

Some in government accuse the institute – which has an all-Australian board – of undermining Australia’s position against what is increasingly seen as a hostile superpower under Xi Jinping.

The big banks, another group with which the government has been at loggerheads in recent years, are excluded from the $27 billion asset writeoff scheme, which is restricted to companies with turnovers below $5 billion.

The banks were also excluded from the JobKeeper wage subsidy, along with universities and temporary visa holders, including international students.

These students will now be able to extend their visas, if they take part-time work in sectors deemed critical, including supermarkets and aged care.

Overall, the budget appears part ideology and part “standard recession playbook”, says Danielle Wood, chief executive of independent economic think tank the Grattan Institute.

“It does look very much like a big set-up for the election,” Wood says. “All of the spending is for the next year and there’s a very sharp downturn after that.”

She queries the budget’s heavy reliance on tax cuts and infrastructure spending.

“I don’t think that’s the right playbook for this recession,” she says. “The real drag on business investment is uncertainty about consumer demand. Measures like increasing JobSeeker could have helped with that.”

Wood says the government could have adopted more unorthodox measures, such as vouchers targeting struggling sectors.

She acknowledges the possibility of rorting, for which the Coalition has attacked the Labor government’s handling of the global financial crisis.

“To do these types of creative schemes, which have more chances of working, you’re taking a bit of a risk,” she says. “The safer thing to do is resort to tax cuts.”

But if many people save their tax cuts, as expected, that won’t work. “I think it was time to go bold,” says Wood.

The government has faced criticisms for doing too little to address the impact of the pandemic on women’s employment, focusing instead on manufacturing, energy, construction and defence.

“They’ve chosen these, frankly, male-dominated industries that haven’t faced the job challenge,” says Wood.

There was little in the budget to boost employment in the hardest-hit industries, including hospitality and the arts. “You don’t create jobs for those workers by doing transport infrastructure projects,” Wood says.

Saul Eslake believes the hiring incentives are well structured.

“The big question is whether households and businesses are going to respond to the very big incentives that are in the budget in the way the government expects them to,” he says.

But he also would have preferred vouchers. “Instead of bringing the tax cuts forward, best use the same amount of money to give everyone a voucher,” he says, nominating $1500 a head.

Eslake calls the spending on infrastructure “miserly” and criticises the total lack of spending on social housing.

Before the budget, the Economic Society of Australia surveyed 49 economists on the most effective stimulus options.

The largest group – 55 per cent – nominated social, or public, housing. Only 4 per cent favoured spending on clean fossil-fuel energy. Yet the budget earmarked tens of millions for energy, particularly gas. It also included a billion-dollar injection of funding for scientific research and development, including at universities, countering previous cuts.

In his budget reply speech on Thursday, Opposition Leader Anthony Albanese vowed social housing would be a focus for Labor, if it won office. He also promised to remove the cap on subsidised childcare, which can make it uneconomical for mothers to return to full-time work. The measure would cost an extra $2 billion a year.

Albanese also unveiled a $20 billion proposal he called “rewiring the nation”, to upgrade the electricity distribution network that was designed for coal-fired power to better cope with a transition to renewable energy.

The proposals allow Australians to start sizing up the major parties’ approaches to economic recovery.

“Our plan is guided by our values,” Treasurer Josh Frydenberg told parliament on Tuesday night. “Our circumstances may have changed but our values endure.”

Budget week proves the truth of that.

This article was first published in the print edition of The Saturday Paper on Oct 10, 2020 as "Budget primes Morrison for an early election".

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Karen Middleton is The Saturday Paper’s chief political correspondent.