No rabbits out of the hat, the Treasurer warned – but he still managed an upside surprise on the surplus, and performed better on Government spending than many of us had expected. I guess that means we’ve been expertly spun.

This budget skilfully manages the competing goals of the Government arising from both its political and economic circumstances. Firstly – and this is easily glossed over, because it has been repeated endlessly by Rudd and Swan – it makes this Government the first in generations to keep its election promises. There’s no political upside to this. You don’t get kudos from the electorate for doing what you’re supposed to do. But there’s plenty of downside if they hadn’t. The mistrust and casuistry with which most people, even those who voted for him, eventually associated with John Howard had its origins in non-core promises and the 1996-97 Budget.

Secondly, it slows spending growth. Swan has called it a “mild tightening” – a poor choice of words, because it’s not quite correct, and doesn’t fit with the rest of his rhetoric about serious spending cuts. The reduction in real spending growth to 1.1% from the 5%+ growth of Costello’s last Budget may not be enough for the Reserve Bank, but its sufficient for it to be portrayed as economically responsible and a massive contrast with the previous Government. At his press conference, Swan explicitly rejected the need for bigger spending cuts – claiming he’d got the balance right between the boom generated by the resources sector and the pressures emerging from the international credit crunch.

But Swan has been particularly clever in the way he has slowed spending, confining the really big, headline-yielding cuts to the Government’s preferred territory of middle-class welfare, from where they can watch Malcolm Turnbull defend baby bonus payments to millionaires, and going for a vast number of smaller cuts, knocking off or delaying individual programs in nearly every agency. These individually yield only millions or tens of millions but collectively account for the bulk of the ongoing spending cuts. There will be howls of anguish from many sectors, but nothing like the anger occasioned by speculation about the carers’ payments back in February, or the threatened cutbacks to aged care funding.

Third, $21.7b and 1.8% of GDP will satisfy many, though certainly not all, of the surplus fetishists. Moreover, it’s been achieved by a canny combination of “justified” tax hikes like on alcopops (targeting binge drinkers) and luxury cars (soak the rich) and knocking off a range of tax expenditures in areas like Fringe Benefits Tax and tax rebates and concessions – most employed by high-income earners, and too detailed to generate real political heat anyway.

Finally, it provides the first real substance to the Rudd narrative of a long-term economic focus. Swan went out of his way, early in his press conference, to attack the short-termism of the previous Government, and watch for Swan and Rudd to push their long-term focus hard in the selling of the Budget. The establishment of infrastructure, education and health and hospital funds, while a convenient way of justifying hanging onto taxpayers’ money, gives a clear sense of nation-building intent over the course of several Parliamentary terms.

What’s not so clear is how the billions put into these funds can be spent in the next four years without adding to inflation, but that’s a problem for the next Budget and the next term.

As an economic policy document, the budget is nearly good enough. But politically, it’s very, very smart – and of a piece with the deft political salesmanship we’ve seen from the Rudd Government so far.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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