A Change in Direction

By Adrian Rook

abbottministry

Last year’s federal budget was big news for all the wrong reasons. Commentators were using words like ‘cruel’ and ‘unfair’ to describe it. In comparison, coverage of this year’s budget has been muted. Skimming the newspapers gives you a sense of the main theme – this is a ‘political budget’.

To understand what this means, you have to understand the politics behind the budget and the motivations of the government. I think that if you want to do that effectively, it’s best to go back not just to last year’s budget but to the election campaign, when the current government was in opposition.

During that campaign, the Coalition assured voters that the main economic obstacle facing the nation was the profligate spending of the Labor Government. This was an election strategy that has been employed against progressive political parties around the world. It proved a winning strategy for David Cameron in 2010. As luck would have it, it also managed to see Tony Abbott elected in 2013. But in terms of the economic agenda, the problem for the government has always been that it over-promised in opposition.

Alongside the chief election commitment to ‘bring the budget back to surplus’ was also commitments not to raise taxes, and not to make cuts to pensions, education, health, or our national broadcasters. This of course was always pure spin, a return to surplus without any reduction in government spending and no new revenue is impossible – indeed the new government committed to forgo revenue by abolishing the Carbon Tax and the Minerals Resources Rent Tax, and increase expenditure through a Paid Parental Leave Scheme that no-one thought was fair or reasonable in the current economic climate.

Then along came budget 2014. At its centre were a number of fiscal tightening measures – cuts to social services, introduction of a six month waiting period for youth to access unemployment benefits, cuts to higher education to force fee deregulation, co-payments for GP visits and other medical services, and a raft of tax increases. Unsurprisingly it was called “unfair” because the majority of big ticket changes negatively affected the poor and downtrodden in the community. But I think the real reason for the political devastation it caused was that the public was caught off-guard, it simply wasn’t what they had signed up for on election day.

The government entered budget season 2015 with a low-approval rating and many of its flagship reforms unable to pass the Senate. The idea that to improve its fortunes the government would have to do a 180 on the idea of surplus as the foundation for economic policy is why commentators have labelled this budget a ‘political’ one.

The six month waiting period for young people to access unemployment benefits, has now become a four week waiting period. The GP co-payment is now off the table. The measure the government was most eager to show off, however, was new tax arrangements for small business including a 1.5% cut in the company tax rate and a $20,000 asset write-down scheme. For a Coalition government these sorts of measures are probably seen as stimulatory, but their only real benefit will be measured in how they appeal to middle Australia.

At this point it should be remembered that there are still cuts to social services on the table, foreign aid will also see significant cuts, and students will undoubtedly be dismayed that the government has doubled-down on its promise to deregulate university fees. But this got little traction in the news coverage – instead the focus has instead been on how the government has abandoned its ‘debt emergency’ rhetoric.

When all is said and done the government came into office touting its fiscal rectitude, and in this respect it has been an utter failure. It has failed on all of its key election promises in terms of its economic performance. Labor and The Greens have run strong campaigns calling out the government for ‘cruelty’ in its economic agenda, and this has quite effectively mobilised new supporters. The question will be whether they can persuade the swinging voters that the government’s economic record is a shambles, even though there are some politically popular measures on the way. The result of the next election remains uncertain, however it must be said the opposition parties have been given a strong leg-up.

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