Courtesy of pre-budget announcements, sanctioned leaks and the fruits of actual journalism (mostly in the Financial Review), we appear to have a reasonably clear idea of the budget: a traditional pre-election budget but on a much smaller scale than usual, due to a dearth of money.
Accordingly, the microwave in the Treasurer’s office has been whirring away reheating leftovers — the $5 billion “infrastructure fund” that represented “a very substantial commitment to infrastructure spending”, according to Major Projects Minister Paul Fletcher, is merely 2014’s asset recycling fund extended to public transport — a welcome abandonment of Tony Abbott’s weird obsession with roads, but no actual new money. There’ll be a commitment to big business tax cuts, the bulk of which will be off in the never-never (much like the illusory benefits that are claimed to flow from them). There’ll be some adjustments to tax thresholds that will make Amanda Vanstone’s sandwich-and-milkshake tax cut look like a feast, especially if you’re on average income, plus the half-hearted go at extra schools funding revealed yesterday. Something for everyone, in proper pre-election budget style, only the “something” won’t be a whole lot.
There can always be a major budget surprise, and undoubtedly not all of the goodies, such as they are, have yet been revealed, but yesterday’s schools funding announcement, and some other leaks, have been dribbled out with the goal of making sure none of the recipients remains unaware of the budget benefits that will flow, or trickle, to them. The occupational hazard of budgets for governments is that voters miss the detail of the things the government wants them to notice, every bit as much as they’re likely to miss the detail of things it doesn’t want them to notice. But it’s even more problematic now with a media cycle that moves so quickly we’ll already be in “what budget?” mode when Opposition Leader Bill Shorten rises to deliver his response on Thursday.
All of that, however, is political gloss. The two critical elements of the budget will get less attention but are more important in terms of the jobs of Australians over coming years:
How will the economy fare over the coming 12-24 months? The budget provides us with Treasury’s best guess about the performance of the economy, albeit with some role for the Treasurer (or in this case, more likely the Prime Minister, advised by head of Prime Minister and Cabinet Martin Parkinson and his deputy secretary, David Gruen) to choose guesses from a range provided by Treasury. We know that inflation isn’t a problem, and unlikely to become one any time soon, but will unemployment remain below 6%? Will we return to trend growth? When will the long deterioration in our terms of trade end? Is there any end in sight to weak wages growth? How will investment fare? Remember, this is an economy that has been operating with massive levels of fiscal and monetary stimulus now for several years, via big deficits and record low interest rates.
What does the path back to surplus look like? Courtesy of the recent surge in iron ore prices, Treasurer Scott Morrison should be looking at lower deficits than Joe Hockey, who had to deal with plunging iron ore and coal prices. But the government has locked in only a slow fall in spending — it’s currently 25.9% of GDP and projected to only fall to 25.3% of GDP at the end of the current forward estimates period, still well above the levels bequeathed to the government by Labor. And there’s a substantial rise in the tax take also on the books already — 22.3% is the estimate this year, well above the burden of tax Labor imposed on the economy, and forecast to rise to over 23%. Will Morrison ever give substance to his rhetoric that Labor is the party of higher taxes, not the Liberals? And given the recent lift in economic growth and better-than-expected jobs data, is the government going to start withdrawing stimulus by cutting the deficit substantially more quickly than merely by whatever lift higher commodity prices provides?
And all of that is heavily dependent on factors entirely outside the government’s control — the international economy and especially China, commodity prices, even share market volatility. Even small movements domestically or internationally can cruel a budget forecast — the 2014-15 budget predicted a deficit of $30 billion; the final result was $38 billion. By the time that result was in, of course, we’d long since moved on to the 2015-16 budget. Budget forecasting is, as we’ve seen so often, a tricky business, but it helps that we all have such short memories.
Crikey is committed to hosting lively discussions. Help us keep the conversation useful, interesting and welcoming. We aim to publish comments quickly in the interest of promoting robust conversation, but we’re a small team and we deploy filters to protect against legal risk. Occasionally your comment may be held up while we review, but we’re working as fast as we can to keep the conversation rolling.
The Crikey comment section is members-only content. Please subscribe to leave a comment.
The Crikey comment section is members-only content. Please login to leave a comment.