So now the long-term Budget situation is even worse.
The paid parental leave initiative announced yesterday is unambiguously good policy. It will yield long-term benefits in encouraging greater workforce participation by women. The only problem is that taxpayers continue to provide an counter-incentive to stay-at-home mothers courtesy of the Baby Bonus and Family Tax Benefit B, but it’s still a big step in the right direction.
As is now pro forma in Australian political debate, the immediate focus was on who missed out and the delay until 2011. The reactionaries at the Australian Family Association even lamented that stay-at-home mothers had been “dudded”, although they didn’t explain why people should get leave if they don’t have anything to be on leave from.
Fair dinkum, the quality of policy debate in this country is pretty dire sometimes.
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The scheme will cost $260m pa — although only half that in 2010-11 given the delayed start. That used to be big money, but doesn’t go far these days apparently. At some point in the last year we’ve collectively added a zero onto our fiscal expectations. The pension increase to be announced tomorrow night will be significantly larger — in the $4-5b range. There are not too many people who’d argue that a rise in the rate of the single aged and carers’ pension isn’t warranted either, although, in the absence of Jeff Harmer’s pensions review, we can’t even start that debate.
But merited or not, the measures take us further into structural deficit. The Government will have to find $15-20b worth of cuts over the next four years even to get back to where it started, and that’s before it faces up to the impact of the recession on its revenue.
But for all that the tax mix the Government inherited from its predecessor was not sustainable outside a minerals boom — an idea that Government has now picked up and is running with — it will be just as complicit if it fails to tackle major expenditures.
That doesn’t just mean means-testing the private health insurance rebate and cutting super concessions — although both are damn good ideas — but cutting Family Tax Benefits, stopping the remorseless growth of health spending and recognising that Defence might have to wait a bit longer for its major acquisitions.
By way of a methodological note, I confess to feeling like a broken record here. This time last year I was demanding the same swingeing cuts (“swingeing” being one of those terms only ever used in the Budget context). So was Access Economics, in its now-ritualistic pre-Budget reading of the fiscal entrails. Readers might be forgiven for thinking my solution to everything, regardless of economic circumstances, is to slash spending.
To be clear, I think the Government has been much more right than wrong so far in its fiscal decisions. Wayne Swan was right to put the meat-axe away before last year’s Budget, given what was coming at us from the financial crisis. In retrospect, that call might have been the making of him as a Treasurer.
The Government was right in its stimulus strategy of keeping it temporary and having a staged delivery of the stimulus via two of the biggest sectors. We can quibble about the size and targeting of the handouts, but of their impact there can be no doubt. My local shopping centre felt like the week before Christmas on Saturday and I doubt that’s a purely Canberra phenomenon.
But now the debate has moved on. At some point someone should compare the evolution of this recession with, say, the early 1990s, or even the brief one we had after the GST. Everything has accelerated now. Blame the internet, maybe, or perhaps climate change, or the yoof of today, but in seven or eight months we’ve gone from financial apocalypse, to economic gloom, rising unemployment, to “green shoots” of recovery and how to return to surplus. I suspect that debate took two years back in the early 1990s.
I suggest the Coalition take heed of this acceleration in its preparations for tomorrow night. The Opposition is now less well-served by having a formal reply opportunity two nights later than it used to be. By Friday morning, when Turnbull’s reply will be being considered, the Budget will already be dropping out of the news cycle, meaning Turnbull will need a big-bang announcement like Brendan Nelson’s petrol excise promise.
Voters will have made their minds up already, based on the Tuesday night coverage and Wednesday’s papers. The Coalition might think about arguing for a Wednesday night reply rather than a Thursday night reply and have most of their response worked out by 8.30 on Tuesday night anyway. Opposition staff go into the lock-up as well, after all.
The Opposition will have a tough enough task anyway. Last year Malcolm Turnbull was badly wrong-footed by the Government, attacking Rudd and Swan pre-Budget for what he thought were going to be savage cuts to programs, only for the Government to produce a bit-off-the-top trim rather than the close shave everyone was expecting.
There’s a danger of a similar slip this year. Turnbull has been hammering the budget deficit and Rudd’s profligacy, meaning he should be an enthusiastic supporter of big cuts. Instead, the Opposition prefers to complain about the cash handouts. Well, they’re done now, unless they want to get stuck into the pensioners. Eventually the Opposition will have to say whether they support spending cuts or want a higher deficit, which is right where the Government wants them to be.
But all that is a political parlour game of much less importance than whether the budget gets fixed. Whether the Government has the will to really upset some voters with cuts to handouts will be made clear tomorrow night. But at some point the Government should accept it can’t stay twelve points in front in opinion polls forever (and in fact may have peaked already — perhaps we should declare “the honeymoon is over”). It has to use some of its popularity to pursue worthwhile reform. At the moment that reform should focus on getting the expenditure side of the Budget down.