Labor carries much psychological baggage from the Howard years. In fact, it’s got the political equivalent of post-traumatic stress disorder. And the greatest damage accrued around economic management.

That’s why we’re having this faintly weird discussion around whether the projected Budget surplus should be abandoned to “pay for” the cost of recovering from the floods.

Labor’s abandonment of economic reform after 1996, as I argued at the end of last year, has left it adrift. This is one of the key reasons why this Government, under both Kevin Rudd and Julia Gillard, has been so bad at framing debates in a way that favours itself. As Paul Keating said – ironically quoted by Wayne Swan after the election last year — politics is an ideas market and if you run the ideas, you run the market. Labor’s dearth of ideas, and its inability to communicate those it has, means its opponents are running the market.

Labor in its first term did a spectacular job of economic management (well, Treasury and the Reserve Bank get most of the credit, but Wayne Swan and Kevin Rudd had the good sense to do as they were advised). But they ended up letting the Coalition make the Budget deficit the de facto measure of its economic competence, particularly during the election campaign. That the Coalition so badly fumbled this exact issue in its post-election discussions with the independents is one of the ironic instances of justice occasionally served up by politics.

But the Government’s oft-repeated commitment to return to surplus by 2012-13 come what may is its admission that it is stuck with a debate defined by its enemies in the Opposition and the media. The projected surplus itself is trivial – a bare $3b – but is therefore of enormous symbolic importance to the government, as if that $3b represented a vast gap between incompetence and astute economic judgement.

You can thank Paul Keating – the “bring home the bacon” version of the dim, distant past – and more particularly Peter Costello for this fetishisation of Budget surpluses. But it’s Labor’s fault that the significant, though hardly massive, fiscal impact of the floods (bearing in mind that the stimulatory “cost” of the rebuilding phase is only part of the fiscal impact, given the lost revenue from farms, miners and businesses who have had to halt business) is being seen entirely through the prism of what it will do the surplus.

The number — a projection two years away, in any event — itself doesn’t matter a great deal. The surplus is simply a tool of political debate, for all sides – even for the business community suddenly changing its mind about the need to curb government spending. That’s why Tony Abbott produces nonsense like the line that the NBN is a luxury that we can now no longer afford. Strangely, he didn’t mention the tens of billions we’re spending on Defence procurement, or the many tens of billion of dollars a year of revenue foregone on tax expenditures, or the tens of billions spent each year, enthusiastically supported by both sides of politics, on middle-class welfare. Even the most cursory glance reveals that there are a whole lot of luxuries in the federal budget.

The Government has one part of its fiscal consolidation strategy correct – to cap extra spending at 2%b real growth and bank upward revenue revisions. What it has been poor at is actually cutting expenditure, for all its insistence that it has made “tough decisions”. Some blame for this lies with the Coalition, which blocked cuts to one of the worst middle-class welfare rorts, the private health insurance rebate, and it’s true that the Government had to balance an uncertain global environment in its first two budgets. But no one believes that in Penny Wong we have a new Peter Walsh ready to spring forth and assail spending ministers, or that she’d receive much support from her Treasurer and Prime Minister if she did so.

A more intelligent debate, led by a Government that had its wits about it, would be around the need to roll back expenditure in politically-sensitive areas to get the Budget on a sustainable footing over the long-term. And all the more so given that, under even the mildest climate change scenarios, the cost of recovering from extreme weather events is going to plague future budgets much more frequently than we’re used to.

Peter Fray

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