20 January 2011

Something's gotta give

The country's third-biggest city is pretty much out of action and will need substantial Federal government help to get back on its feet. One of our major food-producing areas is a disaster zone, food prices must and will go up. On top of all this, the Federal Budget will still go into surplus in 2012-13, come hell or (more) high water.

Where expenditure has to go up, it follows that taxes must be increased if the budget deficit is to be wiped out - well, no. Firstly, jacking up taxes has a deleterious effect on economic growth*, and secondly it is never politically popular. These are the two reasons why Wayne Swan will never just jack up taxes.

Where expenditure on one thing has to go up, it follows that expenditure in other areas will be cut - well, no. Penny Wong has no list of programs to be cut, and if she did she couldn't push them through Cabinet. Defence? BER? There might be a bit of mousy nibbling around the edges, but the whole change-the-way-you-think-about-government hacking we're seeing in the UK now (and saw under Thatcher a generation ago).

This year's Budget looks from a distance like a dog's breakfast, or more particularly Winston Churchill's themeless pudding. The government held office despite, not because of, the masterful tiller-work during the GFC because of the lousy job of convincing people they'd done the right thing. The government will not be advantaged at the next election by flashing around a budget surplus - otherwise Greiner and Kennett would still be in office.

For a start, they have to draw a line under the MRRT. Footage of Don Argus staggering from the Treasurer's office clutching his eye, followed by Swan emerging with clenched fist and yelling "You'll take the MRRT, and you'll like it!". A whole lot of other pissant revenue measures, such as those that make bad tollroads possible and disgrace the very name of infrastructure, they can go too.

It's time to revisit the Henry Review. Oh yes. All those revenue measures that actually support the economy through a growth phase, which reward productive activity and soak the ticket-clippers. Let's have some of them in this year's budget. Tony Abbott will sit there agog, Joe Hockey won't know what to do and Sarah Hanson-Young would probably support it out of sheer bloody-mindedness against a leader who can't cope with life well inside the margins.

None of the foregoing two paragraphs will come to pass, though. Both the Treasurer and the Finance Minister are risk-averse, without realising they are in a position where muddling through will be the riskiest path of all. The idea of a flood levy is pathetic, absurdly inadequate.

A dog's breakfast Budget will erase everything Gillard has tried to do since the election, in terms of getting the government focused on a few, important issues and nailing them, showing the benefit and showing it again and again and again, until it reverberates off every media platform going. A dog's breakfast Budget will, however, only be bad for Gillard if Gillard lets it.

Swan has hardly grown into the role of Treasurer. He was still spooked every time Costello glowered at him, and he has lifted slightly since he left. GFC response aside, Swan is no better than John Howard was as Treasurer a generation ago - except Howard could at least sell the measures in his budgets, whether or not he may have believed in them at the time or renounced them later.

He hasn't grown into some fearsome Machiavellian figure since disposing of Rudd and becoming Deputy PM, in the way that Keating and Fraser wore their bloodied tunics with aplomb. He isn't some dull-but-competent figure like Ralph Willis. He isn't going to grow.

True, he's the leading figure for the Labor Right - but so what? The NSW State election, as well as indifferent performances in their portfolios by one-time wonderboys Burke and Bowen, is weakening the appeal of the NSW Labor Right (and they won't be able to raise a brass razoo after the State election). The Queenslanders will want to clear the mud out of the parish pump and won't tolerate any fiscal quibbling to the contrary. The Victorian Labor Right and the SDA owe Swan absolutely nothing.

It will take fiscal imagination to improve the Budget while rebuilding Queensland and keeping the economy generally on a growth path. Wayne Swan doesn't have that and won't get it, he's had his go. Gillard can't do rabbit-out-of-the-hat economic policy either, but she has to get someone who can and will. If she can do over Rudd, she can do over Swan - particularly if her job depended on it.

* It just does, okay? What do you want, a graph or something? Do you think I am Grog's Gamut or Nicholas bloody Gruen?


  1. Well I think there is some misconseption here, the final cash balance on any budget is determined by income and expenditure in a set time. For the final cash balance fo the budget of FY2012/13 will be based on income and expenditure in that time. By that time most of the recovery expenditure will be complete. Income e.g taxes will be back to full level most likely and potentially higher becuase of the rebuilding income.

    What the floods and bushfires will mean is that the deficit in FY2010/2011 and FY2011/2012 will increase however this will not impact on FY2012/13. This is because much of the spending to rebuild infrastructure will be one off spend not re-occuring spending. This means that the government can have a surplus in 2012/13, build the NBN and support the recovery.

  2. Seamus,

    It would be a mistake to assume that "one off" expenditure programs arising from today's floods will be completed by 2012-13. You can be patronising as you like in explaining the budget but the assumption that the status quo in terms of taxation settings is, I believe, a mistake. This is the perfect opportunity for a paradigm shift.