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The incredible vanishing surplus

Wayne Swan may have the economics right, but the politics are looking disastrous.

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ECONOMICALLY he was doing the right thing. Politically he was eating crow. Which is why it took Wayne Swan so long to do it.

Economists, government advisers, backbenchers - even the Organisation for Economic Co-operation and Development - have said for some time that, with growth slowing and government revenue falling, keeping Labor's promise to return the budget to a surplus next year made no sense. In fact it was likely to be counterproductive to keep cutting spending to meet what was a purely political pledge.

But this was no ordinary promise. It was a promise that in 2010 the Treasurer said would be kept ''come hell or high water''. It was a promise he said in February was ''nailed to the mast''. It was a promise that just last month the Prime Minister, Julia Gillard, said the government was ''on track to deliver''. It was a promise the government had made a benchmark for economic responsibility. Which is why it was so difficult to drop, even when keeping it would have been economically irresponsible.

Treasurer Wayne Swan

No ordinary promise ... Treasurer Wayne Swan. Photo: AAP

And it was to give substance to another political promise that the government got itself into the bind in the first place.

Remember how long it took the then prime minister Kevin Rudd to utter the ''d'' (deficit) word in 2008, even as he was stimulating the economy to get through the global economic crisis. When Labor finally brought itself to say ''deficit'' it always prefaced the dirty word with ''temporary''. In the 2010 budget it defined temporary as three years hence - i.e. next year's budget.

Two fears were driving Labor's reluctance: dropping the promise would give the Coalition another stick with which to hit Gillard's trustworthiness and truthfulness and the fact that both parties have allowed the very idea of deficits to become almost a taboo. In the end, the effects of keeping the promise became even worse.

With Gillard on leave, the Treasurer had to eat crow by himself. But having been vindicated in their prediction that Labor would not return a surplus, Tony Abbott and Joe Hockey appeared together to claim a significant political victory. The day was theirs.

The Coalition has promised always to deliver surpluses but on Thursday Abbott hedged that promise saying, ''based on current figures''. If forecasts change, so might the Coalition's promise. If it sticks with its pledge, when it comes time to tally the cost of election promises in the new year, the Coalition will face its own economic and political problems.