What not be believe in the budget

Like every budget, Tuesday's will be a combination of measures and arguments, each with political and economic dimensions and motivations.  Distinguishing the politics from the economics will be the hard part.

It promises to be a budget in which the government does a lot of crying poor. That's partly because Malcolm Turnbull is likely to call an election within a week of the budget, but is prevented mainly for political reasons from making many big spending promises.

Politically, this government made so much fuss about debt and deficit while on its way to power that, though it's made little progress in reducing the budget deficit and halting the growth in debt, it dare not be seen consciously adding to it.

Economically, returning to surplus isn't urgent, and increased borrowing for worthwhile infrastructure would make much sense.

As part of the crying poor, when state politicians hit the feds for more money, federal ministers reply that they can't help because, though the states are running surpluses, the Commonwealth is still in deficit.

Don't believe it. When the states say they're in surplus, they're referring to their "operating" balance, which is their revenue less their recurrent spending. When the feds say they're in deficit, they're subtracting from revenue not just their recurrent spending, but also their infrastructure spending.

Add the states' infrastructure spending to their operating surpluses and you find that – measuring it the way the feds do – they're still in heavy deficit. (Which is as it should be. If anything, they should be investing more.)

Or, to put it a better way, by insisting on their antiquated practice of including capital spending in their measure of the deficit, the feds are exaggerating the size of their deficit problem.

This financial year's budget papers forecast a deficit of $35 billion (since revised to $37 billion), which included capital spending of about $21 billion.

Further capital spending of $17 billion (including on the National Broadband Network) is hidden in the "headline" deficit, meaning capital spending accounted for 8 per cent of headline spending. Last year it was 9 per cent.

Another thing we'll hear a lot of on Tuesday night is that the government is "living beyond its means" and must mend its ways and live within its means, just as households do.

This is nonsense. It's Scott Morrison doing his best Joe Hockey impression. If you measure them the way Morrison does for the government – that is, by including borrowing for investment in with day-to-day expenses – our households are living way beyond their means.

Indeed, Australia's households have one of the highest debt ratios in the developed world.

Do you think it's a crazy, irresponsible thing for so many households to borrow many multiples of their annual income to buy the home they live in?

Of course not. For most it makes lots of sense. Is a government – state or federal – that borrows to build public infrastructure that will serve the community for decades, adding to our productivity, living beyond its means? Of course not.

National governments may be said to be living beyond their means when their recurrent spending exceeds their revenue, but even that is too simplistic.

Why? Because governments aren't the same as households and it's ignorant to pretend they are. Governments have responsibilities households don't have and also have powers households don't have – such as the ability to impose taxes and even, for national governments, to print money.

One highly relevant government responsibility is to help limit economic slowdowns by running operating deficits – by allowing their recurrent spending to exceed their revenue – while spending by the private sector is weak.

Does that sound too Keynesian for a Coalition government? Too Keynesian for Turnbull who, while opposition leader in 2008, vigorously attacked Kevin Rudd's fiscal stimulus?

Don't believe it. It's clear we'll hear a lot of the argument that Turnbull and Morrison can't cut government spending much at present because the economy is "in transition" and so not yet growing strongly.

That's a Keynesian argument, the antithesis of an austerity policy – though both men would die before uttering the K-word. And it's a sound argument – which is why we've been hearing it since Labor was in power. It was just excuse-making then, but it's true now, apparently.

Of course, it's also true that no politician wants to cut spending just weeks before an election.

Economically, there's no problem with continuing recurrent budget deficits. A better question to ask on Tuesday night is whether the spending that makes up the deficit is going on good programs or poor ones.

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The prospect for workers is brighter than many think

A lot of people are convinced it's just going to get worse and worse for workers in coming years. A lot of oldies think that and, unfortunately, too many youngsters believe them.

Many older people worry that, with the decline of manufacturing in Australia, and the end of the mining boom as well, they just can't see where the jobs will come from.

Young people, on the other hand, believe jobs are getting ever harder to find and, when you do find one, it's likely to be pretty scrappy: casual, part-time, short-term.

What's true is that young people have borne the brunt of the weak economic and hence employment growth since the financial crisis in 2008.

It's taking them longer to find entry-level full-time jobs than it used to and, in the meantime, they've had to get by with casual jobs. More employers have been willing to exploit them by asking them to do unpaid internships.

What's not true is that there's been continuing growth in insecure forms of employment. The proportions of such jobs haven't been increasing.

At a time of "transition" and uncertainty, it's always easy to err on the gloomy side. When you do, be sure the media will broadcast your bad vibes to the world.

But it's not hard to see plausible reasons why things could get better for workers, not worse. And when the ANZ Bank's chief economist unit and the Australian Institute for Business and Economics, at the University of Queensland, peered into the future and ran their best guesses through a model of the economy, that's just what they found.

Everyone loves to dwell on the decline in manufacturing, and the pathetic number of lasting jobs in mining, but few people get excited by the truth that almost all the additional jobs we've created in the past 40 years have been in the services sector.

Nor that most of these jobs have been cleaner, safer, more highly skilled and more rewarding – intellectually as well as monetarily – than most of the jobs no longer being created in manufacturing, farming and mining.

The study makes the highly plausible assumption that this longstanding trend will continue. "Declining material intensity has been observed in all [developed] countries, in part because wealthier consumers buy 'experiences' once their primary material needs are met," it says.

The ageing of the population is almost invariably portrayed as a bad thing, but the study points to a widely ignored way in which it's good news for the younger generation.

With a higher proportion of the population retired (and thus adding to the demand for labour but not to its supply) but low fertility meaning a lower rate of young people entering the workforce from education, demand for the services of young workers will increase.

Here's a tip: employers are chancers​. If they think they can get away with screwing workers (because there are more than enough available) they will. That's what's been happening lately.

But if they don't think they can get away with it (because workers have plenty of other bosses who'd like their services), they don't. And if it gets to the point where bosses have to start sucking up to workers to attract them and hold them, they will.

The study puts it more politely. By their nature, service industries rely less on machines and more on people, particularly highly-skilled workers. So if the services sector's share of the economy continues to grow "this could prove challenging for Australian businesses given our ageing population and changing workforce composition".

A third factor the gloom-mongers neglect is that our continuing move to the "knowledge economy" requires a better-educated, more highly-qualified workforce.

Today, more than half the population has completed the last year of schooling and gained at least a post-school certificate. That's more than twice what it was in 1981.

Since the oldest Australians have the lowest levels of educational attainment, the proportion of people with post-school qualifications could exceed 70 per cent by 2030.

Even so, the study predicts that "the fight to retain skilled workers will intensify", implying that, though the supply of qualified workers will grow, the demand for their services will grow faster.

In such circumstances, employers will be trying to bind their skilled workers to them, not cast them adrift with insecure employment contracts.

If we foresee further growth in the share of the economy accounted for by labour-intensive service industries, employing better qualified and higher-paid workers – over whose bodies employers are fighting – labour's share of national income should rise.

If so, "some of the consequences of a falling labour share, such as growing income inequality, may begin to unwind as well", the study says.

A final factor to remember is that our exports of services are likely to keep growing as Asia's middle class gets bigger and more prosperous.

At present, the goods sector of the economy (agriculture, mining, manufacturing and construction) accounts for 28 per cent of total employment, while the services sector accounts for 72 per cent. The study predicts that, over the next 15 years, the services share will increase by 5 percentage points.

It finds that the industries with the most intensive demand for labour are also those with the strongest growth prospects.

The strongest growing service industries are likely to be healthcare (fed by demand for new medical technologies as well as ageing), education (growing demand for qualifications) and professional services.

These industries are projected to grow by at least 5 per cent a year, on average, over the next 15 years. Demand for labour across the economy is projected to grow by an average of a solid 1.6 per cent a year.

No one – certainly, no economist – knows what the future holds. But don't be led into assuming the only things that could happen are bad.

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