Politically, this is a very clever Budget. Economically… Well, as
Michael Pascoe said in our first edition, “if Costello had a longer term view, he would have removed the tax on
super going in or on what it earns while it’s in there. That would have become
a big incentive to save. Instead, what he did last night becomes a big
incentive to spend.”

There’s both a short term and long term
gamble here.

First, the super changes pump money into the
economy instead of taking it out. Then, they encourage retirees to take their
super as a lump sum, blow it, and then fall back on the pension when the money
runs out.

The Treasurer was poo-poohing this idea last
night – but it’s the risk he’s running. Short-term gain for long-term pain.
Politically and economically.

Of all the economic commentators today, The Age‘s Tim Colebatch seems to have the best handle on the
Budget. This is what he says about
super:

A decision with huge consequences for Australia’s fiscal future appears to have
been made on the spur of the moment, presented as a fait accompli, and
justified in a simplistic glossy brochure that does not even mention the
long-term consequences.

But he’s
got even more to say on the short-term, politically expedient nature of John
Howard and Peter Costello’s thinking:

What we
needed from this budget, now more than ever, was a policy shift back to basics.
We needed to build up the country’s capacity to earn its way in the world,
after the worst period of export growth in its post-war history.

That
means increasing spending on skills, education and training, export support,
industry development and infrastructure, the drivers of future growth.

This
budget spends $11.6 billion of new money in 2006-07 alone, but hardly any of
that is being spent where it will increase Australia’s capacity to export. There is $400
million of new investment, mostly on highways, $20 million a year extra for
apprenticeships, nothing at all to lift exports, and apart from more generous
depreciation rates, little for manufacturing.

By
contrast, there are income tax cuts worth $9 billion a year and hundreds of new
spending initiatives cumulatively costing us billions of dollars in such areas
as defence, security, and fraud control.

Alan Kohler’s pretty good, too, on blowing an “absolute windfall” mostly
from company tax and the commodities boom “almost entirely on permanent
largesse – huge tax cuts and welfare. Despite all the talk about the need to
invest in the nation’s infrastructure, almost none of it was.”

Indeed, if we’re talking about productive capacity, it’s worthwhile
mentioning how the Government failure to tackle high effective marginal tax
rates – let alone child care – will continue to keep women out of the workforce.

And how’s the opposition responding? Labor at least is displaying the
intelligence not to show a complete dog in the manger approach to tax cuts this
year – but Wayne Swan’s comments on the Future Fund are curious. Spend it to
help fix those fundamentals?

Keep an eye out for Swanny come Question Time. If he keeps this up he’ll
be sitting with Bob Katter on the crossbenches – and chumming up to Barnaby
Joyce.

Peter Fray

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