The Government is finally starting to let slip some Budget details. Funding for respite for carers and a welfare card have been flagged overnight (both by Patricia Karvelas, one of The Australian ’s best journalists), and more revelations are likely in the weekend papers. But we still know little about just how tough it will be, and the press is still constructing stories from the most guarded of comments from Wayne Swan.
Today’s coverage is dominated by Access Economics’s Budget preview, with its catchy “Horror Budget or horror interest rates” headline. Journalists have had the preview for some days, under embargo, giving them plenty of time to digest its take on Tuesday. As a sort of alternate Treasury, Access Economics’s pronouncements are treated with suitable reverence by commentators, despite their predictions of an end to the resources boom a couple of years ago having proved just a little misguided.
In fact, their view now is that the Government will be rolling in money from mining company tax receipts well into 2009-10, but that it has already spent a lot of it and seems set to duck the hard spending decisions that are needed to moderate demand and prevent further interest rate rises.
Perhaps. We’re so far into the spin and expectations-management stage of the pre-Budget cycle that one number at this point is about as useful as another. The one clear statement from Wayne Swan is to be found in The AFR today, in which he refers to “bringing spending back to a sustainable growth path.” That doesn’t tell us a whole lot, assuming that the Government wasn’t planning to spend even more than the last Government, but it does rule out the sort of cut in real spending achieved by Peter Costello in his early, funny Budgets.
So here’s a hairy-chested fiscal prediction. The emerging character of this Government is intense caution. For all the tough talk from the Prime Minister and Treasurer, their actions so far have indicated an unwillingness to wear any hurt unless absolutely necessary, to do just enough and no more. And given the Coalition has temporarily abandoned any pretence of being the party of small government, or for that matter being economically responsible at all, there is no political pressure for the sort of serious attack on spending previously flagged – especially not when they can achieve a headline surplus around $20b courtesy of China’s appetite for our dirt.
In essence, the only forces for real spending cuts at this point are commentators and Lindsay Tanner.
Access plumps for 2.6% real growth in outlays, which fits the Swan scenario, and feels about right, although it may be a little optimistic. Swan may prefer the real growth figure to have a 2 in front of it, rather than a 3 – these little things matter, presentationally – but it won’t be much less than 3%, especially given Swan’s complaint that inflation is driving up outlays via indexation.
Either way, that means more Government spending, in real terms, going back into the economy, than last year. That’s not going to help the fight against inflation and interest rates too much.
With any luck, the Government will surprise us and unveil a serious attack on outlays. But don’t bet your house on it. Unfortunately, given the likely impact on interest rates, some people will have no choice about that.