Federal Politics


Swan's mixed message leaves us confused

A budget is a political as much as an economic statement. A Treasurer has his eye on the economic environment, and the milestones he wants to pass in the short, medium and long term. But he is as necessarily focused on having public hopes and expectations about their personal situations, and the nation’s economic health in particularly fine shape by about the time of the next election. All things being equal, that’s about 16 months away.

It’s not always easy to manage to achieve both, and experience has shown repeatedly that political as much as economic prudence must focus on the long-term health of the economy, rather than straight political advantage. Australians are not mugs. They are not economically illiterate. They have a pretty good idea of the financial and fiscal environment. Indeed, despite popular cynicism to the contrary, there is ample recent evidence to show that Australians will vote for good policy ahead of short-term bribes ill adapted to the situation. Provided, at least, that they believe in those who are in charge.

Wayne Swan’s budget starts with advantages and disadvantages. Popular confidence in the Labor government is not high, yet its management of the economy has been fairly good. The economy, by international standards, is in sterling shape, yet it is in significant respects fragile (and not only because of international uncertainties). Many Australians believe they have not personally benefited much from the minerals boom, and the slow part of the so-called two-speed economy has many Australians nervous about their jobs, and significant sections of the economy, including retail, housing and manufacturing, in the doldrums.

Federal budgets often contain mixed messages, or different messages to different groups, but most of those listening to  Swan’s program for the year ahead can be excused for simply feeling confused.

Swan wants the electoral heartland to think that Labor is reconnecting with its old constituencies. This is  with payments and initiatives focused at working families. There are cash payments for those with school-age children, and a large and confusing array of re-announced ‘‘initiatives’’ (if little immediate cash) for national disability schemes, and other benefits, worth about $5 billion in all, designed to make lives more easy.

It’s paid for by money which might otherwise have funded company tax cuts, by deferred defence expenditure, and by significant cuts to public administration. A classic Labor redistributive budget, it might be said. That’s certainly what Swan says.


But it’s also a budget which is severely contractionary, and in ways that will also affect demand, jobs and general confidence. Would a person say she was more, or less, confident or optimistic as a result of what they were told yesterday, or would they remain cautious and pessimistic? My guess is the latter.

The deficit for 2011-12 by June 30 this year will be about $44 billion. The surplus for 2012-13, the government hopes, will be $1.5 billion. Swan hopes that the fiscal tightening will encourage the Reserve Bank to reduce interest rates so as to stimulate the economy even as its own  fiscal direction seems to be to want to slow it down.

Much the same mixed message comes from the buckets of cash going to school mothers and fathers. Does Swan expect that parents will rush out to buy school shoes or colouring-in pencils? Or perhaps, Ipads or TV sets, in a spending spree because of the cash in hand – perhaps like the spree stimulated by cash handouts in 2008?

A good many observers expect that the climate has changed to the point that most parents will use the cash to retire a bit of their credit card debt.

Virtuous as that will be in household economy terms, it will do little for the slow side of the two-speed economy.

Treasury writes most of the budget papers, which are, thus, devoid of a good deal of the spin to be found in the Treasurer’s speech and the press statements. These papers say, bluntly and shortly, that the much-feared carbon tax will have only a negligible effect on the budget figures over the next few years.

This is, on one hand, a significant repudiation of statements made by Tony Abbott and other opposition figures, who have seemed to suggest that the introduction of the tax on July 1 will bring an end to civilisation as we know it. In the nicest possible, understated and apolitical way, Treasury says nonsense.

But the statement would also seem to suggest that the government has endured very heavy political weather for little impact on the economy. The carbon tax was not supposed to make ordinary Australians worse off. Indeed, politicians have attempted to overcompensate most Australians for the impact it will have. But it was supposed to spur a significant shift in the allocation of economic resources, away from high-polluting energy sources to ones which are less polluting. Treasury projections cast doubt on how far it will go to achieve that.

When one considers how much the collapse of faith in Julia Gillard and the Labor government has come from the supposed ‘‘lie’’ in the promise of no carbon tax, and how much advocates of the tax have believed that doing something about greenhouse pollution is a moral imperative, one must ask whether someone has been shortchanged.  It might well prove that by the time the compromises were made, the concessions given and deals were done, the measures were unlikely to affect the physical, as opposed to the political environment. If that proves to be true, a Labor government whose march to colossal defeat is unlikely to be much slowed by this budget will not even have the consolation of feeling itself martyred for some sacred principle. It might be better had they simply gone for broke.