Treasurer Wayne Swan has delivered his sixth and likely final budget in a fraught election year. As many commentators have observed, it is the most unlikely of election year budgets, with virtually none of the populist bribes that usually transpire when governments face the people. It is a largely responsible paper in the shadow of the gravest financial crisis since the Great Depres- sion that goes part-way to restoring a balance to the federal budget absent since the big-spending Howard years. Grand reforms, including Disa- bilityCare and Gonski school funding will serve as the basis for Labor’s improbable campaign for re-election in September.
At long last, this budget should put paid to the binary fatuousness of the “surplus good; deficit bad” mentality that has pervaded Australian politics for the better part of a decade. Virtually no reputable economist has placed a great emphasis on a return to surplus – especially the wafer-thin one offered by Mr. Swan last year – yet it has been presented as a test of economic credibility by both major parties. Labor, goaded by the Coalition to promise a surplus come hell or high water, has more than likely sealed its own electoral fate by over-promising when it was not necessary.
Lies, damned lies and debt
Public understanding of the Federal Budget is always an exercise in lowest common denomina- tion. Note the various news media who wilfully breakdown a $391 billion national budget into a few bullet points under “Winners” and “Losers”. In this Federal Budget, the “Winners” list, at least for the average citizen of Heraldsunland, is rather short. No Howard-era pork barrelling, no generous tax cuts, just money for education and the disabled. Again, not your usual election year budget.
Even less well understood in aspirational Heraldsunland is the concept of debt, at least as it applies to the nation-state. Elements within the Coalition, ably supported by Alan Jones et al, have been successful in running a US Tea Party-like campaign about Australian govern- ment debt. To them, Australia is a Banana Re- public on the brink of economic collapse thanks
to irresponsible government debt. They have even adopted the Tea Party’s vernacular, renam- ing the limit on the issuance of Commonwealth Government Securities the debt “ceiling”. To scare the populace most effectively, they have divided billions of dollars worth of national debt amongst the population to demonstrate how those economic vandals in Canberra are respon- sible for a “whopping $14,000 [of debt] for every working Australian”. Wowee. If only Australia was a global economy instead of a mortgage-lad- en suburbanite. Oh wait. It is.
The problem for these antipodean dull- ards is that Australian government debt is not a major issue of concern for the global markets, as evidenced by the country’s untarnished Triple- A credit rating. A $19 billion deficit in a $391 billion budget is not going to undermine the na- tion’s stability. Nor is $300 billion of gross debt in a $1.5 trillion economy going to greatly im- pact Australia’s economic pre-eminence. This popular misconception of debt perhaps spooked Labor to push for a surplus earlier than they oth- erwise would have, with the resulting “broken” promise fodder for the Coalition in this perpetu- al election campaign. Prepare to hear a surplus of surplus soundbites on television and radio until September 14.
The Aqueduct?
The echo-chamber of the commentariat follow- ing the budget was fairly predictable: a lame- duck budget presented by a lame-duck govern- ment. The nation’s countless rent-seekers came out in force, appearing in front of the cameras where possible to vent their spleen. This budget “offered” nothing for them. What have the Ro- mans Labor ever done for us? We are all, after all, rent-seekers in one form or another.
Small business owners, interviewed the morning after the budget, decried the govern- ment for not giving them money. Sorry, “assis- tance”. One café owner wanted to “look after” her staff, but complained she would have to pay her workers more super. To cover these extra costs, she now has to open Sundays, but also then has to pay staff penalty rates. Working these long hours, she argued, took away from time with her family. Yes, well that is the reasoning behind penalty rates. They serve to compensate workers for working unsociable hours such as the week- ends. These are the costs of running a business and, as economic liberals constantly remind us, life is a choice. It is the owner’s choice to operate a business and open on weekends and, as a result, pay the increased rates of pay.
Similarly, retailers from shoe shops to clothing boutiques complained about the GST low-value threshold, demanding the govern- ment establish a “level playing field” by taxing imports under $1,000. How this would help a small retailer is anyone’s guess. Surely there are far more pressing structural concerns for small businesses. As many consumers know, even if the GST was applied to all overseas purchases, many imported goods would still be cheaper than their local equivalents, placing a question mark over the economic credibility of the campaign to “as- sist” business by creating a “level playing field”. The innovative retailers out there are using the current economic times to their advantage and using technology, rather than decrying it, to reach new markets. Then again, they wouldn’t be rent-seekers if they actually took a big-picture view of the national economy.
In reply
Tony Abbott’s budget reply was much like any opposition reply speech: big on rhetoric, short on detail. This is not a criticism of the Coali- tion’s policies per se, but indicative of the rela- tive difficulty in which oppositions find them- selves at budget time. They must formulate a credible alternative budget with none of the advantages of incumbency. Alas, Mr. Abbott has been guilty of engaging in hyperbole, declaring a “budget emergency” requiring the Coalition’s superior economic management skills. Skills clearly honed during the “profligate” years of the Howard government.
As shadow treasurer Joe Hockey declared at the beginning of March, “if there is no carbon tax, there is no need for compensation”. Yet Mr. Abbott still feels compelled to throw $4 billion at taxpayers to compensate them for a tax that will no longer exist under a Coalition govern- ment. Some “emergency”. Not to mention the unfunded and unexplained “direct action” cli- mate change plan, which Mr. Abbott claims will “reduce emissions with targeted incentives”. Os- tensibly the opposition’s plan will replace a mar- ket mechanism designed to raise revenue with a government-planned scheme that will pick win- ners and cost money.
To Mr. Abbott’s credit, he has been coy on changes to the GST, promising a tax reform white paper which may look at alterations to the nation’s consumption tax. This is a substantial improvement on Labor’s head-in-the-sand ap- proach, which included establishing a “compre- hensive” tax review so comprehensive that it ex- cluded the GST from consideration. While the nation needs another tax review as much as it needs a political party led by Clive Palmer, there is an opportunity for a future Coalition govern-
ment to complete the GST reforms begun by Peter Costello. Any changes would be politically fraught, but at the very least they might have the potential to be possibly discussed at some point in the indeterminate future. As Ken Henry, chair of the most recent “comprehensive” tax review has argued, governments will be forced to rely increasingly on consumption taxes because “it is one of the things that we can practically tax”.
Swan song
The tertiary education sector will be hit hard by the $2.8 billion worth of cuts previously an- nounced, despite protests from students, staff and administrators. The cuts will have real ef- fects on the students who are now the front line of the end of the era of entitlement. Today’s uni- versity students stand to miss out on the start-up scholarships, first home buyers grants, baby bo- nuses and much of the family tax benefits that were available to Australians barely a decade ago. While limiting these entitlements is eco- nomically sound, it does create division between the graduates of tomorrow and those of only a few years ago, with an ever-increasing number of the tertiary qualified entering a moribund job market. Add to the mix that every previous min- ing boom has ended in a bust and the relatively resilient Australian economy could be in for a rocky ride over the next few years.
Should this year’s budget end up as Labor’s last, the government will leave an auspicious economic legacy: managing to avoid the worst of the Global Financial Crisis, presiding over both low interest rates and employment growth, retaining Australia’s triple-A credit rating and keeping inflation low despite the mining boom. In many ways, this budget can be considered the first part of Labor’s election campaign, not for 2013, but for 2016. Should the future Prime Minister Abbott call a double dissolution elec- tion, Labor will ensure the electorate does not forget they are the party of disability insurance and school funding reforms. Just as Labor har- nessed the legacy of Hawke/Keating-era eco- nomic reforms, don’t be surprised to see the eco- nomic legacy of the Rudd/Gillard years front and centre with the passage of time.
