This was a difficult Budget, addressing short-term and long term challenges — and with key pieces missing, due to Ken Henry’s Tax Review not being completed until late in the year.

Wayne Swan has met all of the challenges adequately, and probably no more than that, but that in itself is a fairly substantial task.

But the complex nature of the tasks the Budget needed to perform is likely to play havoc with the Government’s careful political management.

The cuts to expenditure are definitely targeted at higher income earners, with cuts to superannuation concessions, private health insurance and trims to the top-end of the Family Tax Benefit system, but there’s no major attack on spending of the sort likely to upset voters — or require a complex explanation as to why the Government is giving with a stimulus package and taking away with a Budget. As an assault on middle-class welfare, it constitutes a good start, rather than a job well done.

There are fiddles and tweaks, and tightening up of taxation measures, and clever use of bracket creep to take high-income families out of eligibility for Family Tax Benefits, and delays in Defence expenditure, together yielding nearly $15b over four years — twice as much as last year’s Budget, but the Government has already incurred much of the political pain through its leaks. There may yet be trouble, though, over the “temporary” halt on Government superannuation contributions for low-income earners.

But the Government still can’t tear itself away from the big-spending mentality that has marked its handling of the economic crisis, blowing all of the money salted away in funds by the Howard Government and last year on a massive infrastructure program based on Infrastructure Australia, education and health spending. And then there’s its long-promised increase in pensions, both for single pensioners and couples, and a permanent handout each year for carers. Anxious to accelerate Carbon Capture and Storage research, the Government has pumped an $2b into “CCS Flagships”, albeit over nine years, but, stung by repeated criticism that it favours CCS over renewable, it has also established a “Solar Flagships” program for solar technologies and — inevitably for this Government — set up another body, Renewables Australia, to spend $465m on seed funding.

This where the Government’s Budget narrative is at its weakest. It has emphasised the austere nature of this year’s Budget and the need for all Australians — and especially wealthier ones — to make sacrifices, and yet industry welfare will reach new heights in this Budget, however meritorious or otherwise the programs are, and pensioners will get a permanent handout. Parts of the Budget document have the air of the later Howard era Budgets, when no interest group was left unfunded, as if the boom never ended.

The overall message that Wayne Swan will convey (and, intriguingly, his formal Budget speech contains no mention of a deficit figure) will be a confusion of austerity and lavish spending, stimulation and belt-tightening.

A clever Opposition could exploit that confusion, if we had one.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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