For the government, there’s only one number that counts in this Budget — 3. That’s the number of years within which the government will return to surplus, and the number of years early it’s returning the Budget to surplus and the number that will be trumpeted by Wayne Swan and the prime minister from now until the election.
As a statement of the government’s economic credentials to an electorate feeling temporarily jaded of Kevin Rudd and all his works, it is a fairly powerful statement.
The mind-boggling array of health spending in the Budget will impress even the harshest critic of the government health reform plan, but that’s now yesterday’s theme. Health reform is done and dusted. There’s more funding for renewable energy and training, and efforts to encourage the development of Australia as a global financial sector. But this is all about economic credibility — to wit, that the government has it, and the opposition does not, that the government can be trusted, but Tony Abbott is a risk.
While the 2010-11 deficit of $40.8b still looks painfully high for a government battling an opposition obsessed with debt’n’deficits, in truth the Budget leaves the opposition with little room to move. The deficit will shrink dramatically in 2011-12, fuelled by a surge in tax revenue, putting the government within touching distance of a balanced budget years ahead of originally estimated. The opposition’s charges of incurring Greek levels of debt will look problematic given Swan will be presenting a surplus before the election after this.
There’s a faint air of unreality about the rapid return to fiscal rectitude. Not so much from the figures themselves — as John Quiggin shows in Crikey today, an even quicker return to surplus is quite plausible — as from how they were achieved. They have mainly been built on the back of Treasury’s mid-GFC gloom proving too pessimistic (you’ll recall, of course, they were criticized for being too optimistic), a mining boom and a series of accounting changes and tax rises. On the other hand, apart from its health spending, the government has exercised some restraint to bank the surge in revenue, and has extended its commitment to a spending cap of 2% beyond the return to surplus, until the surplus reaches 1% of GDP.
It’s called fiscal discipline without political risk, and this government has proved very good at it, avoiding controversial large spending cuts in favour of keeping growth in spending down.
Swan’s lock-up press conference showed exactly where the government wants the emphasis in this Budget to lie — he spent nearly all of it discussing the return to surplus and the government’s fiscal discipline, before dashing through the spending highlights at the end. And as if to demonstrate just how pre-election budgets have changed, Swan found himself under attack from journalists suggesting the conservatism of the Budget was a pre-election ploy.
Swan repeatedly insisted that the Budget had not been crafted with an election in mind. He might have been lying, but judging by the Budget itself, you could never tell.