All spend and no thrift

The Grattan Institute confirmed what we already know – both parties blew a once-in-two-lifetimes opportunity. Neither Labor nor the Coalition have the humility to admit it.

Investment bankers who get caught out increasing the mortgage and school fees during high bonus years usually have the grace to mumble an embarrassed apology to the spouse when the house has to be sold and the kids have to change schools when the bonuses disappear.

Politicians are harder to shame. Both of Australia’s main political parties still posture as prudent protectors of the public purse, but the record shows they are anything but that.

According to a new report from the Grattan Institute, the terms of trade boom provided a windfall of $190 billion in government revenue over the past decade, of which $182 billion was spent on tax cuts and increased spending.

Grattan’s Jim Minifie has merely put numbers to what we already knew, of course, but it still makes dismal reading. Despite having one of the biggest terms of trade booms of any comparable country in the past half-century, we now have a budget problem that has to be fixed at the same time as the boom ends. Not ideal.

The Howard government wasted the boom on tax cuts and concessions for superannuation; the Rudd/Gillard government wasted it on increased spending. Less than a tenth went to improving the cash balance.

“Successive Commonwealth governments appear to have treated the terms of trade windfall largely as if it were recurrent income,” writes Dr Minifie.

Estimated structural income declined by 3 per cent of GDP over the decade and structural expenditure rose by 3 per cent. “In other words, there was a large increase in Commonwealth expenditure that was effectively masked by the increase in nominal GDP due to the strong terms of trade. Contributions to increased expenditure include increases in family allowances and pension rates and expenditure on health, education and infrastructure.”

The Grattan report was designed to assess whether three fears about Australia’s resources boom were well founded:

1.    That the high dollar has caused permanent damage to trade-exposed industries;
2.    That the boom will end in a severe recession;
3.    That the Commonwealth government mishandled the boom by not saving the windfall.

Dr Minifie finds that only the last of those fears is justified. As for the first two, he finds that the benefits of the boom were widespread, that Australia hasn’t been turned into a quarry, that the mining boom is not the prime cause of the decline of manufacturing and there is cause for “cautious optimism” that there won’t be a recession.

But politicians have left the economy vulnerable because less than 10 per cent of the windfall was saved during the boom years. But it was good while it lasted.

Alan Kohler will be debating Malcolm Turnbull on Coalition NBN policy at a business lunch at the Sheraton Wentworth in Sydney on August 1. To book a ticket click  here.



{{ twilioFailed ? 'SMS Code Failed to Send…' : 'An SMS verification code has been sent ...' }}

Hi {{ user.FirstName }}

Looks like you have already taken a free trial

Please enter your payment details

We have sent you a code via SMS to {{user.DayPhone}}

please enter this code below to complete your SMS verification

We cannot send you a code via SMS to {{user.DayPhone}}

If you didn't receive SMS code please

SMS code cannot be sent due to: {{ twilioStatus }}

Please select one of the options below:

Looks you are already a member. Please enter your password to proceed

Please untick this box when using a public or shared device

Verify your mobile number to proceed...

Please check your mobile number below and press the Send Verification Code button. This will be used to complete your verification in the next step.

Please sign up for full access


Updating information

Please wait ...


{{ productPrice }} / day
( GST included )
Price $0
GST $0
Discount -{{productDiscount}}
TOTAL {{productPrice}}
  • Mastercard
  • Visa

Please click on the ACTIVATE button to finalise your membership


The email address you entered is registered with InvestSMART.

Please login or select "Don't know password"

Please untick this box when using a public or shared device

Register as a new member

(using a different email)

Related Articles