Today’s battle of the budget leaks shows that the game of expectations management about the size of the surplus is well underway.

Judging the budget by the size of the surplus is glib, ignores a host of conditional factors and overlooks the impact of specific decisions on the lives of ordinary punters. But that number is the simple headline that will go a long way toward shaping perceptions of whether the Government will be one of substance or NSW-style spin and management.

Paul Keating started it, back in the 1980s, when he boasted of producing ever-larger surpluses. Surplus fetishism took hold thereafter. Any budget, state or federal, that lacked a healthy surplus, even in the depths of the early nineties recession, looked wimpy, even if it meant infrastructure fell apart and services declined. Once free from the Keating Government’s deficits, Costello pursued the same approach with vigour, until the surpluses became so large that the Government couldn’t ignore the clamour to start handing them back.

Despite Wayne Swan’s best efforts to claim the credit squeeze, the US “tough times” (copyright Dubya) and the stockmarket crash have ended the hitherto remorseless expansion of taxation revenue, the Government is stuck with the perception that it is rolling in cash. One of the few uncontested economic claims Malcolm Turnbull has been able to make lately is that the Government should manage a surplus of 1.5% without even cutting spending.

As a consequence, any surplus without a “2” in front of it is will be portrayed as distinctly half-hearted, especially given the Government’s hairy-chested rhetoric about slashing spending. More than a few economic commentators would like to see a mid-20s figure, to show the Government has made serious inroads into the profligate legacy of John Howard.

So Dennis Shanahan’s front-pager today  declaring a surplus “not far beyond” $17b — echoing an earlier AFR report — looks like a Government effort to hose down expectations, either because revenue projections really have collapsed, or possibly with the goal of surprising on the upside on budget night with a $20b+ figure. But Shanahan’s article was immediately undercut by what looked like a more authentic leak to Peter Hartcher  suggesting $21b.

But even that figure assumes an increase in real Government outlays of 1-2%. So much for the slash and burn approach. Peter Costello’s first two budgets (which were only nine months apart, and should be considered together) contained spending growth to 0.1% and -1.4%. Given the Government’s hands-off approach to cash gushers like the private health insurance rebate and the baby bonus, that sort of rigour appears beyond the ever-cautious Rudd. Lindsay Tanner’s line-by-line examination of Commonwealth outlays, which will presumably feed into next year’s budget, might yet lead to some serious paring back, but a government that grew more fiscally rigorous rather than less as it aged would be unique indeed.

And beneath all this is a larger question being ignored by the surplus fetishists. This is all taxpayers’ money. How about a smaller surplus, built on truly major reductions in government outlays and cuts to company, nuisance and income taxes? But the small-government forces, long battered by the tax-and-spend conservativism of the Howard years, are in disarray. Tanner is their only hope.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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