The first
hints came at 1.00pm yesterday, when we were told that the PM had
informed the Government Party Room meeting a few hours earlier that the
18-month countdown to the next election had started.

“The
government is doing better at the moment than we might expect,” the
Party Room spokesman told us the PM had said. “Governments do have
mid-term slumps and after 10 years, people do take stability and
prosperity for granted,” he continued. And he’d said: “The other issue
for the government is to balance the expectations and responsibilities
of prosperity.”

How do you do that? We should have got the hint in the word “balance”.

John
Howard and Peter Costello have come up with our first ever serial
budget. A budget with something now – and then another with something
else and something more before next year’s election.

The big
something, of course, is $36.7 billion in tax cuts over four years –
cuts at both ends of the scale – that kick in next financial year. For
only the second time in the life of this government, the punters will
get personal tax cuts that won’t vanish almost straight away to bracket
creep.

The personal tax take will fall substantially as a
proportion of the economy next financial year – and the Treasurer is
pointing out that this is a dividend of higher company profits, sharing
the good times around. There’s a big pitch to the self-employed and the
ever growing group of ageing boomers – the super changes. There’ll be
extended tax deductions on super contributions for the boomers who keep
working. Those who retire won’t pay tax on lump sums.

Then
there’s $1.4 billion in extra assistance for families, various odds and
sods for the wrinklies, some photo-op friendly infrastructure spending,
tub thumping on defence and border security, some green sops – even a
50% increase in ASIO staff for all the Tom Clancy fans out there.

So
the budget headline items tip money back into the pockets of punters
who are spooked about ever-increasing fuel prices and threats of more
rate rises. But that’s just part one of the serial budget. The tax cuts
come this year. The super changes come next. When the forecast surplus
of $10.8 billion could prove very handy in the lead-up to the election.
When we’ll learn what’s in Part II of the serial budget. When the fine
tuning can be done.

Even before the new tax tables were
revealed, the Government was already being warned against loosening the
purse strings too much and increasing the threat of rate rises. Yet
despite the new tax scales, the Government has actually failed to
reform high effective marginal tax rates. The tax cuts are more a sign
of John Howard’s and Peter Costello’s embarrassment at how they’re
raking it in.

That’s why the pair has been very clever, leaving
room to move next year. Who knows what they may give us then. We have
low unemployment, strong foreign demand, rising cost pressures and
clear capacity constraints emerging in some industries. The budget
investment on education, training and infrastructure won’t go far.

This
means the spectre of inflation and rate rises will be hovering over the
serial budget. Part II could be a real cliff-hanger. But the Government
is scripting a happy ending that featurs a feel-good election.