Federal Politics

Tough but not politically suicidal

Wayne Swan has been forced to deliver a no-frills, less-is-more program.

Oh, but Wayne Swan must hanker after the grand gestures, the lofty rhetoric, the gasp-inducing figures of the budgets of old - Paul Keating's ''bringing home the bacon'' in 1988 or Peter ''moneybags'' Costello's annual ritual of tax cuts and showers of cash.

But Swan's fate is to live in more complicated times - an economy growing at 4 per cent but with the non-mining states struggling; unemployment so low it could push up wages and inflation, but with pockets of joblessness and endemic disadvantage; revenue pouring in to government coffers in the longer term but unexpectedly tighter in the next couple of years because of natural disasters - inconveniently the years when the Treasurer has to make good his solemn vow to bring the budget back to surplus in 2012-13.

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These are not circumstances that lend themselves to a budget with an epic and arresting story line, even though a defining narrative, or at the least a diversion, is what the Gillard government so desperately, desperately needs. Labor is short on cash for big-bang spending and even shorter on the political capital for really tough savings measures as well.

So Swan has been forced to make do, to deliver a thrifty, no-frills, less-is-more budget that claws back some of the most generous of the middle-class welfare benefits that were taken for granted during the boom years and that crimps and saves from defence spending and the public service.

He has used almost all the money scratched together from his budgetary nips and tucks to pay for policies that encourage - and in some circumstances force - the unemployed, disability pensioners and stay-at-home spouses back into the workforce, to help families keep their teenagers at school and to deliver long-overdue spending on mental health.

Is it a tough budget? Sure. Even taking into account the unavoidable costs of the floods in January it saves $768 million more than it spends over the next four years. The headline figure of $22 billion in savings includes $1.7 billion raised by the flood levy, but also includes billions in genuine spending cuts.


Growth in government spending has been limited to less than 2 per cent for the next five years, which is not an easy thing to do. The increase in the deficit this year is entirely due to the drop in revenue induced by the sudden floods and natural disasters that hit halfway through preparations. The same factors account for half the increase in the budget deficit next year.

But it is not tough in a politically suicidal way. The cuts to family benefits come from allowing families to slide out of the eligibility range for government payments rather than explicitly taking away cash they receive now, and the new work and training package is largely funded through cutting the old productivity places program that was not working anyway.

And it does make good the Prime Minister's theme that more Australians are needed in the workforce for the sake of the economy and their quality of life, and that with careful management more Australians may feel the benefits of the mining boom.

It leaves Tony Abbott - who has championed tougher eligibility rules for unemployment benefits and disability pensions and called for more spending on mental health - with no obvious killer lines of attack, although the Opposition Leader is certain to argue that the higher-than-expected deficits are evidence of Labor's spendthrift ways and the forecasts of future surpluses are not to be believed.

More likely he will try to revert quickly to his political assault over the carbon tax - the absence of which he claims renders the budget fatally flawed, even though the new tax is likely to spend in compensation all the money it raises and therefore have little effect on the budget bottom line.

But can Labor sell its low-key, no-nonsense budget story - that hard work is the road to riches and that some hard government decisions now will help the country make the most of the boom? It did not win many plaudits for the $70 billion it spent to buffer the country from recession, mainly because of its mistakes. It is now hoping to be rewarded for tough love and restraint.

The extent to which it is banking on this budget could be measured by the number of ministers hovering around the budget lock-up yesterday. If they do not get their message through, they know the relentless Abbott assault will take centre stage again.

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