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Selling the budget's 'stinking carcass'

Date

Stephen Bartos

Last month's budget was only the first instalment of reforms that Australia must undergo.

Seeding red ... One of many protests last month against federal budget cuts.

Seeding red ... One of many protests last month against federal budget cuts. Photo: Jason South

Australia's starting position on debt is better than most nations. However, our trajectory is much worse. 

The 2014 federal budget is by no means the toughest Australia has seen. Peter Costello's 1996 and 1997 budgets and several of Paul Keating's budgets in the late 1980s and early 1990s were tougher. Yet, according to not only opinion polls but also statements from the government's own backbenchers, this budget has not been well received, to say the least: Fairfax journalist Mark Kenny quotes one unnamed senior Liberal describing the budget as a ''stinking carcass hanging around the government's neck''.

This means more uncertainty for the public service. Many of the budget measures rely on the Senate to support the legislative changes needed to bring them into effect. The usual delays due to political horse-trading and deals with minor parties will be more protracted. Public attitudes about budget measures strongly influence those negotiations. The Senate will still pass the appropriation bills, including departmental expenses. Under section 53 of the constitution, the Senate cannot amend bills for ''ordinary annual services'' of government; the practical effect will be that the Senate will pass Appropriation Bill No.1 before June 30 this year. However, changes to other legislation needed to give effect to budget measures – for example, amending the Social Security Act – have no guarantee of passage. This year, there is more than the usual amount of uncertainty both because of the new incoming Senate and the controversy over the budget.

A host of marketing, sales and advertising people have commented that the government is failing to sell its budget. That is simplistic and misleading. Sure, there are elements of the budget that could have been explained better. But the Prime Minister, Treasurer and other senior ministers are no slouches at public communication. Sitting on the sidelines saying they should try harder misses the point that what sells a budget is its content. We need to look deeper for why this budget has been poorly received.

All tough budgets attract criticism. John Howard only just scraped over the line in the 1998 election, winning a slim majority of seats despite losing the two-party-preferred vote (noting the GST also played a part). Keating was roundly criticised for his 1989 comment on ''the recession we had to have'', and for his following budgets. History has since judged these periods more kindly as important to fiscal consolidation and sustaining economic growth, but at the time they were troubling. Even so, the degree of criticism of the latest budget has been intense and sustained.

One reason has been that this budget addressed only half the fiscal picture. Typically, budgets contain a range of tax and spending measures. This budget was light on the tax side, because the government has a tax inquiry under way and plans a white paper on reform of Australia's tax system. Spending cuts inevitably hurt the poor more than the rich, because it is overwhelmingly low-income people who receive pensions and benefits and who make use of government services. The ''social security and welfare'' and ''health'' functions in the budget together amount to more than half of all Australian government spending. Health is also one of the fastest-growing areas. It is impossible to make serious long-term cuts to spending without affecting these functions. This leads to criticism that the burden of fiscal repair is falling unfairly on the poor and disadvantaged.

Changes to tax, including addressing the incredibly generous superannuation tax concessions that benefit the wealthy, would both aid fiscal consolidation and help address the issue that budget savings so far, focused as they are on spending, disproportionately affect the poor. The government has already hinted at possible future tax cuts. If these help low-income earners and address fairness in tax concessions, then it can regain budget lost ground.

Another budget problem is its inconsistency. Although the Coalition abandoned many of its promises, paid parental leave remains. Even the commission of audit was sceptical of its value and thought childcare would be more helpful. Trying to cut health spending through co-payments is potentially an important contributor to fiscal repair; but the message is undercut by establishing a $20 billion medical research fund, which is an extra cost. The inconsistency between new spending and fiscal repair is hard for the government to deal with.

Treasurer Joe Hockey has done a good job of explaining why we have a long-term fiscal problem. New MP Clive Palmer, whose Palmer United Party will be highly influential in the Senate, has noted that our debt is low by the standards of other advanced countries. He is right. Australia's starting position is better than most nations. However, our trajectory is much worse. Rising costs, especially in healthcare, must be addressed. They are unaffordable at current tax rates; Australia can borrow to fund the gap, probably for some years, but sooner or later the bill must be paid. We know there is a huge pothole ahead on our road. We can change lanes now or keep driving along until we fall into it.

That has been apparent to most economists, including the Treasury, for some time. Before the election, Hockey was almost a lone voice in arguing the case, while his colleagues kept promising new policies. Hockey has now been joined by Finance Minister Mathias Cormann in vigorously pressing the case for fiscal repair. Nevertheless, it still seems as if not all Coalition senior ministers appreciate the position. This adds to perceptions of inconsistency.

The Coalition is also paying the price for unprecedented levels of anger and distrust in the electorate. Journalist Laura Tingle described in her 2012 Quarterly Essay, Great Expectations, an angry electorate that has little patience with governments or politicians and an inflated sense of entitlement. Australia in general is richer than ever, but more selfish – which is perhaps why the government took a hard line on young people's access to Newstart benefits and drastically cut overseas aid funds. Opposition to the aid cuts has been largely limited to aid bodies, but the youth unemployment restrictions have been more widely criticised. My guess is that the rise in temporary, casual, part-time and contract work means that, even if official unemployment figures are low, more of the population today than ever before faces a possibility of unemployment in the future.

A further change in the environment is the rise of social media, which has meant that furphies about the budget persist far longer than they used to. A prime example is the claim that the government introduced a new fuel tax in the budget. It did nothing of the sort. It simply reintroduced indexation of fuel excise, a longstanding tax that has applied under governments of all persuasions. Indexation means simply that it keeps pace with inflation rather than falling away. Yet the claim that it is a new tax has continued, driven largely by social media. Indeed, the government ought to be congratulated for its willingness to overturn a populist decision of the previous Howard government to abandon indexation in 2001. It made no economic sense at the time, and even less since.

The budget was only the first instalment in a broader plan. As well as the tax white paper, there will also be one on federalism, a set of new governance arrangements for the public sector, and a suite of unfinished recommendations from the commission of audit. The government rejected only two; those not implemented in the budget were marked for further consideration. These will potentially mean far more fundamental changes to the role and functions of the public service than anything in the budget so far.

Stephen Bartos is executive director, Canberra, at ACIL Allen Consulting and a former senior public servant. s.bartos@acilallen.com.au

37 comments

  • How come if we have a "budget emergency" that Abbott & co are planning tax cuts just before the next election? What kind of "emergency" do we have - to which the answer seems to be "not much of one". No wonder they are having trouble "selling" it!

    Commenter
    peter
    Location
    Sydney
    Date and time
    June 02, 2014, 12:01PM
    • Their cunning plan is to throw out some lollies to voters, who they believe are idiots so that all will be forgotten and forgiven,

      Commenter
      comment
      Date and time
      June 02, 2014, 12:29PM
    • The biggest mistake any Government can make is assume people are stupid and now we have access to a lot of information via digital media the people can see exactly what is going on. The hard decisions being made are done early on in the political cycle so people get used to them and realize they were not as doomed as everyone else is making out. Lives will not change dramatically and the impact will be very small if barely noticeable except for a few instances like visiting a GP. Sometimes the media is not a good thing as they tend to exaggerate and blow things out of proportion. It is up to the individual to assess the information and make their own judgement and mine is mostly people will whinge about everything whether they are affected or not!!

      Commenter
      The big bad wolf
      Date and time
      June 02, 2014, 12:55PM
    • Re emergency: we are in the same situation as Western Europe in the 1980s. Debt levels manageable, populations clamouring for more handouts. There the pollies folded and kept borrowing until the problem became too big. We, now, can still turn the situation around with small loss of skin: if we don't, we are going to be in the same situation as Europe today.

      Commenter
      greg
      Date and time
      June 02, 2014, 12:58PM
    • Anything Labor has introduced, Abbott has done the direct opposite, and hiis continual deceit is becoming insulting. He has offered tax cuts in the future. Are we really supposed to believe that this will not simply be pre-election vote buying with the money he has ripped off the poor with his 'budget emergency' garbage. A minute ago we had a constructive Labor government. Simply to be politically different Abbott has done a 180 degree about face and has introduced a regressive destructive government fanatical about neoliberal ideology.
      If the LNP really wanted to save money, they'd simply integrate the boat people into the Australian community and spend to do it. They'd get the money back in taxes, and give the economy a boost at the same time.
      It is obvious which political party is 'wacko' - the LNP is 'wacko' big time.

      Commenter
      adam
      Location
      yarrawonga
      Date and time
      June 02, 2014, 1:20PM
    • @greg,

      Or Howard/Costello could have introduced a mining super-profits tax to reclaim some of the proceeds of the unprecedented one-off mining boom in a sovereign wealth fund for Australia's future needs.

      Or Howard/Costello could have maintained existing income tax levels rather than handing out tax cuts as electoral bribes along with the myriad of other middle-class welfare programs.

      When combined with Howard/Costello's first home buyer grants, capital gains discounts for housing speculators and Keatings negative gearing, the tax cuts and middle-class welfare were leveraged at least 10x into the price of existing housing stock.

      Yep, those tax cuts helped finance the increased cost-of-living and record private debt (which just hit 180% of GDP - over 5x public debt levels).

      And the current government plan to address this...how?

      By deregulating the universities and spruikers in the financial services/real estate industry so that they'll get Australians into even more private debt whilst promising to cut taxes despite telling us we have a long-term revenue problem?

      Makes perfect sense...

      Commenter
      retired@33
      Date and time
      June 02, 2014, 1:33PM
    • Greg are you implying that Maggie Thatcher was not successful in introducing neoconservatism / neoliberalism , and that the GFC did not happen due to greed on Wall Street because of the opportunity provided by the new fiscal regime. That it was the safety net which has caused our current 'budget emergency' ?

      Commenter
      adam
      Location
      yarrawonga
      Date and time
      June 02, 2014, 1:37PM
    • @comment, if Howard's four terms are anything to go by, and indeed Abbott's election victory itself, their belief is entirely justified.

      Commenter
      Markus
      Location
      Canberra
      Date and time
      June 02, 2014, 2:09PM
  • The main problem with the Governments supposed fiscal repair budget is that it patently doesn't address the purported fiscal problem and in fact, through the abolition of numerous revenue measures such as the minng and carbon tax, FBT car leasing rorts, and tax breaks for wealthy superannuants, returns the budget to surplus later than the ALP would have.

    The budget is a fiscal con job and an economic failure which does nothing more than accelerate the process of transferring more of the wealth of Australia to the wealthy. Stinking carcass of an already dead Government indeed.

    Commenter
    GOV
    Location
    Sydney
    Date and time
    June 02, 2014, 12:12PM
    • It was never intended to address the purported fiscal problem, it is simply the class war that the LNP has often accusing the Labor Party of provoking, - like kids - 'What you say is what you are' ? ?

      Commenter
      adam
      Location
      yarrawonga
      Date and time
      June 02, 2014, 1:31PM

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