This is a holding pattern Budget. There is only one new policy; the rest is a variation on a theme.

To be fair, it is a very courageous policy; Peter Costello has explicitly introduced an education voucher for those children who fail to meet national literacy and numeracy benchmarks. This is, of course, the thin end of the wedge – a wedge that, in future, will be used to improve education standards in Australia. It is long overdue. It will be hard for education unions to argue against this voucher. It is a good policy and a clever policy. Unfortunately, there is little else in this budget that can be described as being good, or clever.

Of course, the government is spending money on rural areas, health, the aged, and defence. Any government would make those expenditures. But there is no clever policy, no innovation in this area. Simply more money for this, and that. The ALP’s ‘Education Revolution’ is addressed by flinging money about. A Higher Education Endowment Fund with a $5 billion start-up investment will be created. Individuals will be able to make a tax-deductible donation to the Fund. This, of course, will silence those who feel they want to spend more on R&D. This, of course, is a slush fund for universities akin the Future Fund. If the Future Fund is bad idea, so too is this fund. Yet, it will be hard for future politicians – especially an ALP government – to dip into this fund. Of course, this has been the problem with the Howard government all along. It is unwilling to allow individuals to spend their own money. It would rather keep the money in quarantined funds.

Again the government has failed to undertake fundamental tax reform. The government has tinkered with tax thresholds, but has not reduced tax rates. Standard economic theory predicts that the deadweight costs of taxation are related to the square of the tax rate. Increasing thresholds does not reduce the tax burden. The changed thresholds and tax offsets do reduce so-called high effective marginal tax rates for low-income earners. But the government could, for example, have cut the 40% tax rate. That would provide a massive inducement for low and middle-income earners to increase their efforts. Of course, the government could have grasped the nettle and introduced a flat personal tax rate.

There is little, if anything, in this budget for business. True, the government does spend money on education and training, but the corporate tax rate remains at 30%. The corporate tax burden has increased very dramatically over the past few years and this budget does nothing to reduce that burden. Of course, companies don’t vote and in an election year we shouldn’t have expected a change to the corporate rate.

The budget is rightly cautious in the area of climate change. There is some expenditure on the easy things that can and should be done. But no word of a carbon tax or emissions trading system. It may not be enough to placate the environmentalists, but voters may be satisfied. All up, however, it is yet another missed opportunity to fundamentally restructure our taxing and spending policies.