Not every treasurer in the past has been in the PM’s inner sanctum but Hockey is in with Abbott.

Not every treasurer in the past has been in the PM’s inner sanctum but Hockey is in with Abbott. Photo: Andrew Meares

The only politics that matters today is the forthcoming budget. The government’s professed goal is to wipe away Labor’s legacy of massive debts and deficits. The fiscal fightback starts with the budget but will not end there; many long-term structural policy issues will still need to be addressed but the budget must not disappoint.

To do the job properly, the budget will have to be unprecedented. The government will release the commission of audit later this week. Many of the government’s supporters will judge the government by how many of the commission’s recommendations are adopted. The fewer adopted, the greater the disappointment.

This budget is very much the work of two people. Undoubtedly there can be an interaction between personalities and policy and it can be unproductive as was evident when Tony Blair gave too much authority to Gordon Brown to run the British economy, leaving the country with huge debts when the global financial crisis arrived. I don’t think that will be an issue between Joe Hockey and Tony Abbott.

Hockey’s reputation as Treasurer is certainly at stake but so is Abbott’s reputation. One difference between the Hockey/Abbott pairing and Howard/Costello is that Hockey and Abbott are about the same age and have a long personal connection.

Not every treasurer in the past has been in the PM’s inner sanctum but Hockey is in with Abbott. Most of the ministers say that Abbott is as good as Howard in managing his colleagues. He works well with his ministers and they are free to speak their mind. Joe and Tony are not blood brothers but they go back a long way from school and through politics.

No one should be in any doubt that the PM is calling the big shots as did Howard, but at the same time Abbott does seem to rely more on Hockey than Howard relied on Costello. Provided they keep working at the relationship and if the PM curtails his penchant for unilateral decisions, Abbott could eventually pass the baton to Hockey in a way that was not possible for Costello.

Howard was never especially close to Costello. Howard was older and he had the upper hand because he had been treasurer under Fraser. Unlike Abbott who has never claimed to be an expert on the economy, for Howard it was a case of been there and done that.

To my knowledge, the best example of Costello standing up to Howard was over the exchange of letters with the RBA about its independence. Costello got his way. But generally, while Costello had excellent instincts about economic issues, Howard was always the one to determine the politics of the economic issues.

There were times when Costello found that politics was very frustrating. On one occasion, when I was a defence minister, and Costello was chairman of the Expenditure Review Committee, he insisted I agree to a change to funding for Defence. The bottom line was a cut to Defence spending. Howard's policy was no cuts to Defence; now Abbott's policy. When I said I was not budging Costello’s reaction was to pick up his papers and walk out of his own committee. Some times in politics it pays to bite your tongue.

For this year’s budget there are four policy crucial realities:

First. Revenue is not the answer. The problem is spending. A mooted revenue hit might be fair enough as a temporary measure but strictly on the clear condition that a revenue grab does not become a substitute for the savings measures.

Second, infrastructure spending will not somehow fill the alleged drop in economic activity as a result of government cuts. Not only does infrastructure spending have a long lead time and thus provide little immediate impact, infrastructure should not have priority over all other expenditure items.

Third, the Coalition in opposition made too many promises. It believes now it must stick to its promises but that is difficult because some of the policies were contradictory. The government would be better to focus on its No. 1 promise to do everything possible to fix the debt and deficit. That does not mean throwing broken promises in the face of the electorate but it does mean doing the job expected by the electorate.

Fourth, the government needs to accept that whatever is in the budget, it is essential that it introduce reforms to boost growth. More growth means more jobs, more revenue, fewer handouts and higher living standards. As examples the government could keep its promises but still push harder for reform on youth unemployment and specific legislation for the resource sector which otherwise faces the severe threat of losing billions of dollars in investment.    

I am looking forward to the audit commission report. It’s a real chance for Australia to get its act together.  

Peter Reith is a former Howard government minister and a Fairfax columnist.