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Business Week that was

A back down by the federal government on financial product commissions and a gentle reminder from the Reserve Bank on the cost of the federal government’s deficit hunt. Michael Pascoe comments.

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Ask not what the Treasurer can do for you, but what you can do for the Treasurer – as he obviously needs all the help he can get.

The whole nation suffers when consumers lose heart. Thus Joe Hockey's spectacularly unpopular first budget is proving economically damaging as well. While the Reserve Bank's verdict is out on the implications of the sharp consumer confidence dive, the budget itself features a sharper fiscal contraction than the central bank expected.

Treasurer Joe Hockey delivers his first budget at Parliament.

Consumer confidence has taken a dive since the release of Treasurer Joe Hockey's budget. Photo: Andrew Meares

So, for the sake of the nation, here are a few steps that could restore a little confidence by removing some of the budget's more contentious aspects and improving the communication.

A few of the fixes are relatively easy, but the bigger issues will require an injection of political courage to deal honestly with the electorate. First the easy stuff:

Hose down the Medicare brawl

You want to introduce a co-payment for those currently bulk-billing? Here's a reasonable olive branch: exempt all pensioners and children under 18. That wipes out the main complaint about the announced policy – the idea that a financially-stretched parent would hesitate about taking a sick child to the doctor.

Once you have slipped "co-payments" into the system, you can always fiddle it a bit more later on.

The ruse of claiming this pricing initiative is for a medical research fund  - "the budget that cures cancer!" – hasn't scored thanks to the government's broader credibility problem. Better at least reinstate the funding for the commercialisation of our existing quite strong medical research. That might at least improve credibility in the research community.

Sell fuel excise indexation

This is a matter of trying to overcome the government's weakness of being unable to effectively communicate with an electorate that has lost trust in politicians making promises that mean nothing – the price paid for chanting "no new taxes".

The compromise here would be to offer the reverse of the current age pension indexation – excise should rise by the lesser of the CPI or average weekly earnings. This should make it easier to explain to people that indexation won't cost them more in real terms, that the fuel tax should merely remain constant as a proportion of household budgets. Having created the monster of forever telling Australians that they're doing it tough, this would at least allow the line that indexing fuel excise will make it no tougher.

It would help if the government had credibility about specifically spending fuel excise on roads – but that's a bit hard when there's actually a cutback in federal money going into transport in 2014-15. So let the deficit slide a little more to allocate funds to Infrastructure Australia's hit list and move beyond the current focus on three mega-projects.  It's easier to sell a story if it's also the truth.

The under-30 dole doozy

Denying the dole to those under 30 for six months arguably is the harshest single issue in the budget. When you're promising a higher unemployment rate anyway and arming those over 50 with a $10,000 incentive to be employed, there's an ugly element of doctrinaire cruelty in punishing people for not getting jobs that aren't there. Sure, Eric Abetz would like to reinstate an underclass of cheap itinerant rural labour, willing to work for little more than bed'n'board, but even dedicated Liberal supporters are uneasy about this one – perhaps with a view to higher crime rates.

But it's also the easiest problem to fix: just drop it. It won't get through the Senate anyway so better to confess it was a terrible mistake and ditch it without trying to defend it. Blame an unhealthy IPA element in the party and purge them. Besides, you don't really need the IPA and Murdoch extremists now –  remember that you are now in government.

Pension indexation changes

Given the demographic tsunami building up a little over the horizon, limiting age pension indexation to the CPI is a sound policy. Current living standards will be maintained and improvements above that become something that the government of the day will have to deal with as finances and politics permit.

The sales pitch here is complicated because the immediate hook relies on the coalition's fundamentally flawed carbon policy. With Palmer's puppies giving you what you want on that front, do the maths on what Labor's carbon tax pension compensation gift was worth, add the amount that allegedly will be saved by scrapping the carbon price and demonstrate that it actually adds up to years of above-CPI indexation. Promise to revisit indexation when the double-carbon-effect nominally runs out.

Transform the GST

Everyone knows what you're up to and what you'd like to do. The current cunning plan of forcing the states to demand a widening or deepening of the GST is politically reasonable, but it's not enough to counter the public's understandable cynicism about your "no, never" promises in the election campaign.

However sound the argument about the proportion of direct taxation and over-reliance on income tax, however reasonable it is that the disadvantaged can be compensated, it won't go down well with people who can only see the cost.

So change the GST into the HST – the Health Services Tax. Demonstrate that it is specifically levied to pay the states' health care costs, costs that can't otherwise be met. Australians don't mind paying tax so much if they can see it's being spent on something that is important to them.

With the $80 billion you're slicing from what the states thought they would be getting for hospitals and education, it shouldn't be difficult to get them onside.  And you could try to paint yourself as genuinely concerned about maintaining health standards.

Education dedication

You're being given low marks for your dedication to improving education, probably because you're not dedicated. The flip-flopping on Gonski was shameful and Christopher Pyne's hair splitting has been as bad a look as two big finance types sucking fat cigars.

(And while mentioning it, quit the cigars. Most Australians are intelligent enough to realise smoking is a dumb look. Again, you no longer have to follow the Murdoch/IPA line. And it's bad for you.)

But improving education is hard. It's the most important investment you make in Australia's future. In the long run, it may be the only thing you can really do to maintain Australia's living standards.

Leaving it to the states hasn't worked and won't work. The "competitive federalism" ideology is a crock – it dooms the poorer and dumber states to becoming poorer and dumber.

Thus it's not possible to abandon Gonski unless you have something better to replace it. Your job of being a responsible treasurer includes changing your colleagues' language: it's not a matter of spending on education, but investing in it.

This investment is required across the board – from childcare/pre-school through to tertiary. This probably is your second-hardest job. You could start by grabbing the $5 billion earmarked for the Tony Abbott's paid parental leave thingy and applying it to childcare/preschool.

But that leads to your hardest immediate job:

Man up to Tony

You have an increasingly unpopular leader, or a decreasingly popular one, if you prefer it that way. Having successfully helped the Labor Party to lose the election, he had the shortest political honeymoon in living memory and now enjoys all the credibility of Tony Abbott. Yet he seems to be happily riding roughshod and unchallenged over the government, from an expensive mistake like the PPL to the rich symbolism of his knights and dames.

In your own department, you have the shame of being forced by a vindictive leader to flick the Treasury secretary you respect and need and recognise as the best person for the job. You have the backing of party elders Howard and Costello in wanting to keep him – but, so far, you've lacked the ticker to simply say "no" to your leader.

This should be acutely embarrassing for you. If you're not capable of reining in your prime minister now, there's a strong chance he'll get worse. That's what routinely happens with CEOs who consider themselves bulletproof and aren't given reality checks.

Coming clean

All this is only possible if you start by levelling with the Australian people, dropping the Opposition act of blaming everything on Labor and pretending everything will be hunky-dory if we just scrap the carbon price and mineral resources rent tax.

Having cried "wolf" for four years over the non-existent  immediate budget "crisis", it's hard to take the people with you for the difficult job of fixing the longer-term budget challenge.

You have to play a less partisan role – it's a sign of confident leadership if you can – and explain that the last two terms of the Howard/Costello government and the start of the Rudd government were plain wrong in putting tax cuts and handouts ahead of the nation's needs.

It should be easier to sell the freezing of tax benefit indexation if people are told the truth: they shouldn't have had it in the first place. Take comfort from the Labor polling that showed voters would have preferred Rudd's "me too" tax cuts to have been spent on health and education.

Part of levelling with the population has to be honesty about tax revenue and expenditures. That also solves questions of the budget's "fairness".

If we want to have the NDIS and greater investment in education, we're going to have to pay for it. Some of the unnecessary and very costly expenditures will have to be trimmed and some extra revenue eventually will have to be raised.

That means superannuation changes. It only makes sense for the Tax Office to subsidise super up to the point of not requiring the pension. Beyond that, it's not the role of government to provide incentives for the wealthy to become wealthier – and there's no need to.

ASFA's white paper on superannuation is a starting point for dealing with lump sums.

And while a more rational and reasonable super system should be part of the tax review, you don't need to wait for another election if you're honest with the population. Confess that you were wrong to oppose and overturn the minor super reforms of Labor's last budget – that people on the lowest tax bracket shouldn't be penalised for putting money into super and that the well-off paying 15 per cent tax on super fund earnings of more than $100,000 a year is more than fair.

Clean out hangers on

While you're at it, in the spirit of new-found honesty and the longer-term challenge, reinstate Labor's FBT changes as well. The salary packaging industry is just another bunch of undeserving rent seekers leeching the taxpayer  – they have no more right to expect government largesse than car makers.

It would show ticker and integrity to do it sooner rather than later as you know your tax review will recommend – if that review itself has ticker and integrity.

The salary packagers are just one of the hangers on you would be better off without. Again, it's a matter of realising you're in government now.  They need you, you don't need them. It was one thing to jump into bed with any and everyone who was opposed to Labor, but you can rediscover principle now that you're not dependent on them.

Oh, they'll whinge and moan out of self-interest, but the rent seekers, tax dodgers and favour extractors are the nation's real leaners.

Lighten up

Crucially, facing up to the challenge doesn't require talking down the economy. The gloom-and-doom thing you did every day for four years seems to have become a habit.

Most of the economic news since February has been pretty good, a chance for you to claim credit for restoring confidence, but you stuck with the glass-half-empty face and your exaggerated mid-year economic and fiscal outlook (MYEFO) figures.  Your budget's forecast for 2013-14 GDP looked pretty silly within weeks thanks to the national accounts showing 3.5 per cent growth in the year to March.

Joe, it's time to accentuate the positive because there's a lot of it. Many things are going well for Australia but you're still scaring people with dire warnings of economic disaster unless the lower classes keep their place.

It might appal you, but you actually need to make Labor voters happy with their lot. There are more of them than coalition voters now, so depressing the majority is a silly thing.

Labor voters think you and Tony Abbott are worse than the GFC. That's not helpful.

It's in your own political interest to cheer up, to win back the hearts and minds, or at least the votes, of those who only voted for you to get rid of the Gillard/Rudd circus. The last thing you want is to disappoint them so much that they'll vote for Palmer next time.

Besides, optimists live longer, are more successful and are generally nicer people. Give it a go. You just might realise you wouldn't want to be anywhere else on earth and that politics doesn't have to be the duplicitous, nasty and decidedly grubby game all sides have made it.

We're collectively sick of that, Joe, sick of mates of one colour or the other concentrating on helping those of the same colour, of putting the interests of their political party ahead of the nation. If we were offered some integrity by a leader, there's a good chance we'd follow.

Michael Pascoe is a BusinessDay contributing editor.