Seeing sense as end nears
May 2013
The federal budget has prompted a good measure of old-fashioned responsibility on both sides of the political fence.
Labor's budget this week is like the pyramid of an Egyptian pharaoh, says one of the party's federal MPs: "Gillard is building the monuments for her legacy, and she's sacrificing us slaves in the process."
The Prime Minister has certainly contemplated her political mortality with an election in just 120 days. It has concentrated her mind on her legacy, but also on getting her financial affairs in order.
Labor has now accepted that it is very likely that it will lose.
After years of plans and strategies, tricks and stunts, bribes and baffles, the sort of political games that Paul Keating might have called "tricky-poo politics," the Gillard government's federal budget delivered a good measure of old-fashioned responsibility.
"We had to," said one of her inner circle in total frankness. "We had nothing else to run with."
Yes, the deficit is budgeted to blow out by nearly $21 billion this year, producing a deficit of $19 billion this financial year and $18 billion next. But it could have been much, much worse.
Unlike a standard election-year budget, this one resists the politician's urge to buy his or her way back into office with cash splashes, handouts, and bonuses. There is no "fistful of dollars."
Indeed, it actually starts to withdraw some of the handouts it had pledged earlier. Labor's latest budget cancelled a round of tax cuts, called off a promised increase in family payments, and ended the baby bonus.
The MP who likens his leader to Cleopatra is unhappy at this abandonment of standard political behaviour. He wanted Gillard and her Treasurer, Wayne Swan, to persist with handouts, in the belief that this might help him hold his seat on the day of reckoning.
But the crass old handoutism certainly didn't work for John Howard in 2007, it certainly hadn't worked for Gillard to now, and it's hard to comprehend how some fiscal irresponsibility could improve the government's fortunes with an electorate that seems so implacably set against it.
Until this budget, Labor pursued the narcissism of activism. "Surely the people will come to love us if only we find the right way into their affections, so we must keep trying."
That's how we got the last years of Labor's constant campaigning with unaffordable spending, class warfare, xenophobia over 457 visas, misogyny and everything else.
But Labor has now accepted that it is very likely that it will lose. The clearest evidence of the onset of this realism is that the party's national executive has drawn up Labor's internal budget on the basis that it will win 32 per cent of the primary vote at the election. That equates with about 46 per cent of the two-party vote. In other words, a wipeout.
If so, it means that Gillard will go down in history as a prime minister who held power for over three years but never won an election, and Swan will go down as a treasurer who delivered six budgets but never delivered a surplus.
But now, according to Gillard's unimpressed MP, we see the narcissism of legacy-building. What are her modern-day pyramids and sphinxes? One is the national disability insurance scheme that Gillard has labelled DisabilityCare.
The other is the school funding formula that used to be known as Gonski until Gillard's plan for financing it - by cutting university funds - was disowned by none other than Gonski himself. And it's true that the budget did make room for the financing of both.
It appears that only one of them will survive a change of government. Tony Abbott supports DisabilityCare and so do the states. But Abbott has doomed the schools funding plan formerly known as Gonski. Only one state, NSW, has signed up for it, and Abbott says this means it cannot be a national scheme and he will not persist with it.
Yet the moment of mortal reckoning has also brought Gillard and Swan to make an effort to put their finances in order, and this creates the possibility for Labor of a dignified departure. Labor's last-minute conversion to budget responsibility is good news for the national interest.
But Abbott also declared a "budget emergency," and Joe Hockey has described it as a "major crisis." How could that be good news?
Their hyperbole is helpful if it gives the Liberals the political elbow-room to enact responsible budgeting of their own. But in the short run at least, it's nonsense. Labor talked a lot of nonsense this week too, but consider the Liberals' overheated propaganda first.
Abbott does have a gift for lampooning Labor. This is from his budget reply: "The government originally said that the deficit was 'temporary.' With seven in a row, the Second World War was more temporary than this government's deficits."
And this one: "The Treasurer now says that there will be a surplus in four years' time. That's four years after the Treasurer and the Prime Minister said that it had already actually been delivered and spent tens of thousands of your dollars boasting about it in letters to their constituents. If a public company made these sorts of claims its directors would most likely face serious charges rather than asking to be re-elected."
But the Liberals' alarmism is thoroughly overdone. Compare Abbott's "budget emergency" with the assessment by the US-based credit rating, Moodys.
After seeing the budget, Moodys reaffirmed the Australian government's Aaa credit rating, the highest possible, and so did the other two major international ratings agencies. Moody's senior vice-president for sovereign risk, Steven Hess, sent out a client briefing note that said although the budget deterioration was a "credit negative development," "the projected deficits are relatively small as a percentage of GDP.
"As a result, the ratio of government debt to GDP will rise only marginally before beginning to decline, and Australia will remain among the few Aaa-rated sovereign debt issuers with a low level of debt. Australia's main vulnerability remains its dependence on external capital markets for finance, but this is not a major risk to the government's financial position unless global capital markets turn against Australian borrowers."
Even after adding the debts of all three tiers of government in Australia, Moodys couldn't really see how you could turn this into an emergency: "Including state and local government debt, consolidated government debt is approximately 25 per cent of GDP, still a low figure compared with other Aaa-rated countries.
"The median level for the 14 sovereigns that we rate Aaa is 50 per cent, and Australia has the lowest debt level of any Aaa-rated sovereign with the exception of Luxembourg."
Labor has been guilty of its own self-serving nonsense. Wayne Swan told us ad nauseam that he was unable to deliver the "guaranteed" surplus because of "massive write-downs" of revenues.
This is Treasury talk for "massively wrongheaded forecasts." The revenue was not "written down." It was never coming. It never existed and was never in prospect. The anticipated tax revenues were only ever expected under a fictitious scenario that the Treasury called a "forecast." Wayne Swan and Julia Gillard have both tried to explain the cause as an historically unusual development which Gillard told audiences this week was "incredibly technical".
No it's not, Prime Minister. It's incredibly simple. She and Swan love to go on about a divergence between two different ways of measuring economic growth - real gross domestic product growth and nominal GDP growth - as the core explanation. Far too complex for mere taxpayers, voters and citizens to understand.
But the simple reality is that there is only one measure that counts, and there has only ever been one. We earn our wages and buy our groceries and pay our electricity bills with the money that passes through our hands. This may be the thing the economists tell us is part of the "nominal" economy, but it's the one we all live in. It's the one that taxes are extracted from. We understand this, Prime Minister. We live in that world. We are, in fact, the ones who pay those taxes. The Treasury merely messed up its forecast.
It pitched a figure - it said growth in this "nominal" economy would be 5.1 per cent. And it turns out to be 3.25 per cent. For each missed percentage point, the Tax Office collects about $5 billion less, according to Stephen Anthony of the consultancy Macroeconomics. The anticipated money was a figment of the Treasury economists' imagination, but in Wayne Swan's mouth this turns into a "write-down."
So what has the Treasury done in this budget? It's pitched 5 per cent again. And 5 per cent or more in the three following years as well. Sigh. As the budget papers themselves explained in statement four, the good ol' days of Howard-era roaring revenues are not coming back. They're history.
So the Treasury got its guess wrong, and Swan then compounded the error by constructing his "iron-clad" surplus commitment on the basis of it. Now the Treasury is doing it again, and Swan is doing it again. He now promises a surplus in four years.
But this time, Swan probably won't be around to have to deal with the consequences. It's likely to be Joe Hockey's problem.
And just as political mortality sobered the Gillard government into some budget responsibility this week, the looming reality of the prime ministership has led Abbott to take a step towards some budget responsibility of his own on Thursday. Abbott's budget reply kept open the option of retaining any and all of Labor's spending cuts: "We reserve the right to implement all of Labor's cuts, if needed."
Including ones he called "objectionable," like dumping the Howard brainchild, the baby bonus. The Coalition shadow cabinet had baulked at this idea only months ago. Why the change?
Joe Hockey showed his shadow cabinet colleagues a slide on Monday night, the night before the budget. It listed spending cuts or tax increases that the Gillard government had announced, but not yet legislated. In other words, an Abbott government would very likely have to legislate them. They tallied to $28 billion.
Hockey warned his colleagues that the government would be announcing more the next night. "If we don't accept Labor's spending cuts, we will have to find spending cuts ourselves, plus find our own" to cut the deficit below the level they would inherit from Labor.
This so daunted the shadow cabinet that it gave in-principle support to the idea of accepting all the Labor spending cuts. It was the transforming power of impending ownership of the problem.
And in the longer run, Australia's public finances will be a problem. As the population ages, we face decades of severe strain and a future akin to Europe's present. It was a happy week for Australia because both sides of politics contemplated having to take responsibility for their decisions.
You have to start somewhere.
Read more:
http://www.theage.com.au/opinion/politics/seeing-sense-as-end-nears-20130517-2jrwb.html#ixzz2TcUf25Tb