Desperate, deceitful and deliberately dull: Budget 2015

Tom Crowley


May 13th, 2015

ESSA editor Tom Crowley dissects the Federal budget.

Last month, Tony Abbott proudly declared that this year’s budget would be “dull”. It’s clear now why he wanted us to look away. The government has performed one of the swiftest policy reversals in recent memory.

A question of politics

For years, the Coalition could speak of nothing other than the debt and deficit disaster. From the opposition benches, Abbott and Hockey warned the public that our budgetary position was untenable. To put us on a path back to surplus, tough fiscal medicine was needed, of the sort that only a Coalition government could deliver.

That talk has vanished. There is no tough fiscal medicine in sight in this year’s budget papers. Savings, once touted as the vehicle for a return to surplus, are now being used to fund new spending. Stimulus is the order of the day. Everyone is a winner. Families will benefit from a $3.5bn investment in childcare over five years. Small business will get a 1.5% tax cut and will immediately be able to claim assets up to $20,000 as tax deductible. $1.6 billion will be spent on listing new drugs on the Pharmaceutical Benefits Scheme. Asset-poor retirees will have their pensions increased. Northern Australia will get funds for infrastructure development. The Border Force will receive extra funding, as will our intelligence agencies. In short, good old-fashioned Keynesian stimulus.

And who pays? Most of the pain appears to have been shipped offshore. Tax-dodging multinational corporations will be brought to reckoning. Digital imports from abroad will be subject to GST. Foreign investors will face fees. Even backpackers working whilst on holiday will be taxed from the first dollar they earn. Some locals will lose out as well, particularly wealthy pensioners and stay-at-home parents, but both of these losses are balanced out by the gains to low-income pensioners and working mothers.

It is no coincidence that this “have-a-go”, big-spending budget stands in stark contrast to last year’s effort. The 2014 budget was an unmitigated disaster for the government. Its regressive measures were deemed fundamentally unfair. The government paid dearly, savaged in the polls. To add to Abbott’s woes, the most unpopular measures failed to pass the Senate. The government’s political capital had been almost entirely drained, and he had nothing to show for it.

Little wonder, then, that no fights have been picked this time around. The government’s fear of public opinion is so crippling that it is now either unable or unwilling to take a stance it will have to fight for. The have-a-go approach has replaced the debt and deficit rhetoric for no other reason than that it is politically palatable. Making everybody feel like they’re a winner is a short-term boon for a government incapable of seeing beyond the next election.

And the economy?

But to take a broader view of the situation, the political motivations behind the government’s decisions are neither here nor there. It is more important that the government chooses the right course than that they choose it for the right reasons. So, then, an important question must be answered. What does our economy need from the Federal budget now? Should we be concerned with stimulation or should we be saving for a surplus as rapidly as we can? Can we do both?

These are difficult questions to answer. Australia’s economic outlook is uncertain. So much of what lies ahead depends on circumstances beyond our control and beyond our capacity to predict. Nonetheless, dangers abound. Our dream run of uninterrupted growth can surely not continue unhindered. The rapid growth of the Chinese economy, upon which so much of our prosperity has depended, is slowing. Iron ore prices have plummeted and the terms of trade have fallen swiftly. The local outlook is equally troubling. Interest rates are at record lows, lowered this month to 2%. The Australian dollar has not fallen enough. Housing prices are high. Consumer and business confidence are shattered. Jobs growth is weak. At the same time, we have a budget firmly in the red and riddled with structural problems, with government spending the same as it was during the GFC. All of this might be temporary, and the situation might improve. But as Chris Richardson points out, the risks of a bad outcome are greater than normal.

Plainly, the prospect of an impending recession is very real. Our run of continuous growth might continue, but it seems likely that it will not. If a recession hits us now, with a budget deficit of this size, the economic and social consequences would be disastrous. The optimal path for government in this environment is unclear. Spend more now to stimulate the economy and the date for a budget surplus will get pushed further and further back, potentially threatening our credit rating. Cut savagely, on the other hand, and a bad situation might quickly become worse.

This element of the unknown is inevitable for matters of economic policy. To make the best decisions for our future prosperity in this atmosphere of confusion, open and probing discussion is necessary. We may not know for certain what dangers lie ahead. But we will never be ready to face any danger we choose to ignore. If we are dishonest about our economic position when we debate budgets and policy alternatives, we do ourselves a great disservice.

This is the great weakness of this budget. Not that it is cynically-motivated, or purpose-built for the election cycle. This budget is fundamentally dishonest. The economic difficulties mentioned above were scarcely mentioned in Joe Hockey’s budget speech. When they were mentioned, it was in the past tense. Turbulence in China, in iron ore prices and at home were headwinds which the Coalition had navigated. Australia’s prospects were good. It would grow and grow more rapidly. With minimum pain, the government would have the budget back in surplus in a timely manner. Within three years the deficit would be reduced to $6.9 billion.

It sounds too good to be true because it is. The assumptions lying behind this change were obscenely optimistic. It was assumed that growth over the next year would be 3.5%, well above the RBA’s prediction. The iron ore price was assumed to be $48 per tonne, despite Hockey himself admitting only weeks ago that it could drop as low as $35. It was assumed that the economy would return to normal, that all of the woes of the present would be temporary and growth would continue in line with its long-term trend. To bury such an assumption in the budget’s deficit projections is not simply optimism. It is wilful deception. Joe Hockey stood before the Australian people on Tuesday night and confidently announced a credible path back to surplus he knew full well was unlikely to eventuate. No matter; the election will come before then.

This is just one of many signs that the government is steadfastly unwilling to have a mature conversation with the public. Their stubborn refusal even to have tax increases and changes to superannuation on the table illustrates a similar point. The government will not engage in meaningful debate with the Australian people, opting instead for misleading rhetoric and shallow generalisations. This was true of the debt and deficit disaster and it is true of the have-a-go budget. Why? Perhaps it’s contempt. Perhaps it’s fear. Whatever it is, it’s not leadership.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • Hannah Lipshut

    I really think you’re making the budget into something its not here. I don’t the the government went around calling the budget dull and boring to get the public to “deliberately look away” while they did a policy back flip. I think that the 2015-16 Budget really is just… dull and boring. This budget has very few high magnitude measures, at least compared with Budget 2014-15. The reason for this is not that they have had a change in ideology, it is because they are operating in a very different climate to what they thought they were last time, and the unimplemented measures of last year’s budget leave many policy spaces no-go territory for them. There is no good old fashioned stimulus here, and you will find that the PBS new and amended listings measure appears every economic update as a result of organic PBS growth and PBAC processes. Sorry folks but there really is just nothing to see here.

    • Peter Crowley

      No stimulus? You have to be kidding. Government spending is at 25.9% of GDP. There is plentiful of stimulus here and in the last budget (the two really have to be seen together). Most of the big cuts they crow about are across the forward estimates (2017-18) and are very unlikely to be delivered, hence the so called “credible” path to surplus. No one can seriously think we can get back to surplus without repairing the revenue side of the budget. One more thing – the policy no go areas are a result of their own incompetence and cowardice. Leaders will take the debate where it needs to go, and I think failed economic leadership was the point of Tom’s analysis. There is everything to see hear – our national economic policy is being driven not by the times, but by Abbott’s concern for his own skin.

    • Tom Crowley

      Thanks for your comment, Hannah!

      You’re right. The budget is, in large part, dull. I didn’t mean to suggest that Abbott was wrong when he used that word. Quite the contrary! As the title suggests, I think this budget is deliberately dull. Why? Politics. After an unpopular budget last year, the plan this year was to produce an unobjectionable document with a few sweeteners thrown in. This was a budget motivated first and foremost by the impending election, not by our economic conditions. A political document, not an economic one. This was the view I formed upon hearing the budget speech, and it’s one which is shared by many. John Howard and Peter Reith have hinted at the politics of the budget in recent days (Reith seemed to support the political motivations, Howard was less congratulatory). I’m not sure how to hyperlink these into this comment, but you’ll find them both quoted on this morning’s episode of Insiders. Their sentiments were wholeheartedly endorsed by the entire panel.

      The second part of my argument is that this political game-playing is not good enough. This was not the year for a dull, political budget. Serious structural problems abound in the budget and our economic outlook is weak. The government dodged this fact, basing its figures on assumptions of trend growth. I don’t think this is good enough. A government which sidesteps debates because they’re afraid of “no-go territory” is a government which fails the public. Sure, it’s politically difficult. But the best political leaders are willing to a difficult stance and argue for it.

      Also, I’m not sure I agree with your assessment that there is “no good old fashioned stimulus here”. If the Treasurer openly exhorting small business owners to head to the store and buy themselves gadgets “immediately” isn’t stimulus, I fail to see what is.

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