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Federal budget 2014: Will the pain be worth it for Tony Abbott?

Joe Hockey gets a 10 for courage, an eight for fiscal responsibility and a three for keeping commitments in a high-risk budget that will test the discipline, cohesion and salesmanship of the entire Abbott government.

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Budget 2014: 'we've kept our promise'

Joe Hockey says the most significant pledge the Coalition made was to fix the Budget and they've kept that promise.

Whether Tony Abbott gets to implement his program across two terms (or more) will depend on whether voters agree that the pain being imposed has a purpose and forgive the multiple breaches of faith. Will they reward the courage or punish the infidelity?

Also critical will be whether Hockey is right in asserting that the cuts will not further dampen consumer and business confidence and weaken an already sluggish economy in a state of transition, where the unemployment rate is tipped to edge higher to 6.25 per cent.

The Treasurer has minimised this risk by opting for genuine structural reform that begins slowly and builds over time – and by offsetting the cuts in payments by boosting infrastructure. He deserves credit for securing almost 80 per cent of the improvement in the budget bottom line the hard way – from cuts in spending, rather than short-term fixes such as efficiency dividends – and for being candid in declaring that this is only the start of the budget repair project.

The economic rationale is that the savings kick in when they are most needed to help the budget, from 2017, and that the infrastructure spending will be a catalyst for more spending by states and the private sector. The political cleverness is that much of the tough medicine, such as indexing the age pension to inflation rather than wages, doesn't begin until after the next election.


By then, there will also be plans for tax reform, federation reform and workplace reform on the table, and a compelling case for increasing the GST to help the states find the money that will be needed to pay for hospitals and schools. There may also be the lure of tax cuts.

The rub is that pensioners and benefit recipients will feel the pinch at precisely the time when the "temporary budget repair levy" on high income earners disappears, and well after the pollies' pay freeze is forgotten.

Having been less than candid with voters before last year's election, Abbott and Hockey appear determined to be totally upfront in 2016. For that, they deserve credit, too. Predictably, they maintain they are keeping faith with what they retrospectively describe as their most fundamental election commitment – fixing the budget.

But whether university students, struggling families, the unemployed, motorists and pensioners agree will be revealed in the months and years to come.

Certainly, budget repair was at the heart of the Coalition's mantra in 2010 and 2013, along with stopping the boats, scrapping the carbon and mining taxes and building the roads of the new century. But this promise was heavily – and unnecessarily – qualified in scripted and unscripted remarks by Abbott in the lead-up to last year's election.

After repeatedly promising tax cuts without new taxes, no increases to existing taxes, and no cuts to health, education, the ABC or spending on indigenous programs, Abbott declared at his campaign launch: "The worst deficit is not the budget deficit, but the trust deficit."

Now, the budget deficit is reined in but the trust deficit continues to blow out.

Now, with record low ratings for an incoming prime minister, Abbott has to rebuild trust with an electorate that has already made its feelings plain on the fuel excise increase, the Medicare co-payment and, to a lesser extent, the deficit levy for the wealthy.

He aims to achieve this by wielding a big stick and a modest carrot. Motorists, for instance, are being told the extra fuel excise will be spent on improving roads. The sick are told the extra cost of going to the doctor will help create the world's biggest medical research endowment fund. Those who face the prospect of working longer are told employers will be given an incentive to give them a job if they are over 50 and on the dole.

But there are many unknowns, including whether freeing up universities, so they can compete "with the best in the world", will put them out of reach of the next generation of students – or, at least, those put off by the prospect of paying back higher tuition fees when they are in the workforce.

The bigger question is whether voters will buy the narrative that underpins the budget. Will they accept that Hockey is not imposing austerity, but presenting opportunity in the form of a viable and reasonably well-calibrated plan to make the welfare system sustainable.

Will we buy the line of Abbott to his troops before the detail was revealed on Tuesday: that "this is a watershed moment when a bold new government does what has to be done and sets the nation on a better course"?

The case for action is compelling, and summed up by one statistic: that, without policy change, spending on the pension is projected to increase by 70 per cent over the next decade.

But the challenge is mighty. For all the waste and duplication in spending on indigenous programs, can half a billion be saved over five years without compromising the goal of closing the gap? For all the lack of accountability of government agencies, can some 230 programs be abolished and 70 bodies shut without discarding valuable services?

These are big questions, which is why Abbott was not over-reaching when he told his MPs this is a critical week in the life of the government – and the country. Having been less than frank before going to the polls last time, his promise now is that nothing will be hidden when he next faces the people.

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