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Mar 7, 2012

Eventually reality will hit the opposition’s fiscal frolic

The Coalition has serious budget problems and they won't escape the consequences forever. A series of fumbles makes them look totally at sea on fiscal strategy.

The sporting cliché is you only play as well as your opponent allows you. The alternative is occasionally true, too: sometimes you play as badly as your dud opponents.

With the spotlight on the Labor leadership stoush and the Carr-for-Canberra reverse wedgie (© Andrew Probyn), the pressure, to the extent that they’ve been under any pressure since April 2010, should have been off the Coalition. Instead, there’s been a series of fumbles and unforced errors.

There was Abbott’s “I’ll be prime minister” line, the sort of thing not so much hated by voters as claimed by press to be hated by voters, and covered accordingly. Then there was the reaction to Bob Carr’s appointment, after the Coalition had spent last week basing its entire political attack on the government over his non-appointment; the indefatigable Christopher Pyne was sent onto Lateline on Friday night to perform the alarums and excursions necessary to cover the retreat on that front, only to be forensically dissected by Emma Alberici.

And then there’s the Coalition’s budget problems. The Coalition is in a deep, deep hole on its budget plans, but judging by the noises coming out of the darkness, they’re still digging.

As former Gillard adviser Stephen Koukoulas pointed out this week, Joe Hockey, in committing to have a lower tax:GDP ratio than Labor, casually signed up to finding an extra $80 billion-odd in savings over forward estimates. Even if it’s delayed until the first Hockey budget in May 2014, it’ll cost an extra $24 billion.

Yes, that’s on top of the current $50-70 billion they need to find. If you had some magical combination of Peter Walsh c.1987 as finance minister and Peter Costello c.1996 as treasurer, you’d still be struggling to achieve that level of savings.

Then there’s paid parental leave, Abbott’s totem for his conversion from a 12th to late 20th century view of women. It’s hard to avoid the impression that Andrew Robb, despite subsequent backtracking, let the cat out of the bag on the scheme this week when he said nothing had been finalised. At the very least, it’s a preview of the stoush likely to happen in ERC and budget cabinet in the lead-up to May 2014.

The problem for the Coalition scheme isn’t just its huge cost compared to Labor’s scheme, which is based on the national minimum wage: the minimum wage will be the baseline of the Coalition scheme, but anyone earning above that will receive up to $75,000. It’s that the scheme will grow much faster than Labor’s.

That’s because the national minimum wage grows more slowly than average weekly earnings for women. The minimum wage has grown on average 2.7% per annum since 2008 — although it wasn’t increased at all that year. Full-time adult female earnings grew on average 4.7% per annum over the past five years. In 2007, it grew at 5.4%. The Coalition, correctly indexed the scheme cost at 4.7% on its 2010 costings. On that basis, the scheme will cost $4.7 billion in it first year and total about $20 billion over forward estimates and keep growing rapidly. In years with high jobs growth, faster wages growth will accelerate that growth.

That $20 billion figure is a lot of money to fix Tony Abbott’s problem with women voters. There are image consultants who’d charge a lot less and, judging by Abbott’s current unpopularity with women voters, do a better job.

There remains, too, the problem of the Coalition’s costing of its direct action policies on climate change. This is grossly underfunded in terms of the price per tonne of abatement, if we assume the Coalition is at all serious about achieving a 5% reduction target by 2020, let alone any more ambitious targets. The fact that few in the media other than Lenore Taylor have focused on the profound problems of this policy doesn’t mean a Coalition government won’t have a serious funding problem with the policy. For the moment, however, the opposition’s stance on this revolves sticking its collective fingers in ears and chanting “not listening.”

Joe Hockey is giving an economic speech early this afternoon intended as The Australian Financial Review declared today, to be a “spine stiffener” for the opposition. The real job the Coalition’s economic team needs to do is start giving comfort it’s not totally at sea on its fiscal strategy. Sooner or later reality will hit.

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188 thoughts on “Eventually reality will hit the opposition’s fiscal frolic

  1. Jimmy

    Anyone with half a brain can see the coalitions economic policies are a poularist shambles that will be seriously damaging to this country and if the debate stays on economic grounds the govt will be much more of a threat in the next election than many expect.

    The concept that their policies on the carbon tax & MRRT of keeping all the compensation while cutting the revenue (and in the case on the carbon tax then spending billions more of their own policies) don’t add up will be grasped by even the most economically illiterate voter as they don’t pass the commmon sense test. Raising the company tax rate to pay for their parental leave scheme is hated by business and most of the liberal party itself and the massive amount they will have to cut from govt spending to achieve a budget surplus will salm the breaks on economic growth.

    Add to that today’s pronouncement from Barnaby that the Nationals will support the parental leave scheme if Abbott commits to zonal taxation (I assume code for tax cuts in marginal National party seats) and you really do have an absoulte mess.

  2. fredex

    Hang on, what’s going on here?
    Am I in the right place?
    Am I actually reading an article at Crikey that is daring to criticise the parliamentary Opposition, that is stating, finally, belatedly, the bleeding obvious?
    Actually putting a modicum of pressure, shining a murky spotlight on the shambles that is the COALition, drawing some minimal attention to its many levels of incompetence?
    Yikes!
    What next – an admission that they have no sensible policies, that there are deep rifts within their self described ‘unity'[sic], that they are ethically challenged? That they are not an alternative to the existing government?
    Perhaps just hinting, softly of course, no screaming rants, that the COALition is plain wrong on just about very major issue relevant to Australians.
    Nah. Won’t happen.
    We’ll be back to the standard Gillard/ALP bashing soon.

  3. Jimmy

    Fredex – I wasa amazed to, just goes to show what can happen when people stop focusing on Rudd V Gillard!!

    BK did still assume the Libs will win the next election though.

  4. fredex

    Gidday, Jimmy.
    For a person by person comparative evaluation of the government team versus the Opposition media mouth pieces of the COALition its worth checking out Andrew Elder’s blog “Politically Homeless’.

  5. Scott

    Come on Jimmy, you know how it will work.

    The week after the election, Treasurer Hockey will state that the budget is in a worse state than even he had imagined. There a “budget black hole (TM)!!!” Thus the Coalition will not be able to pay for all it’s promises as it had previously stated.

    Because of this, Hockey et al have had to make some tough decisions. To keep the MRRT (but remove the company tax cut), remove the Carbon Tax Scheme (and it’s assistance) and sell off Medibank Private and the ABC. Abbott’s Parental leave will be capped at $50,000 instead of $75,000 and the Environmental Direct Action plan will be shelved (which is basically what it was designed for).

    All new governments get one opportunity in it’s early years to blame the previous ones for “non-core” promise breaking. That is why the coalition is not worried about the finances at this stage.

  6. Holden Back

    Where are the spambots?

  7. Jimmy

    Scott – I am sure that is what Abbott & Hockey are hoping for, I just hope the voting public aren’t stupid enough to fall for it.

    Whichever way you look at though Scott the Libs economic polices are rubbish.

    Good to see though old Sloppy Joe saying the Libs will slash all sorts of govt subsidies for business, apparently if you business is threatened by the carbon tax that is terrible but if your business goes under because the govt pulled it’s assistance the that’s good policy.

    I also wonder that given the “core” nature of some of those “non core” promises whether Abbott would be branded a L i a r?

  8. Jimmy

    Holden – Give them time, they are still trying to figure out which irrelevant distraction to go with today – Anyone want to have a stab at it, maybe Craig Thompson and the corrupt unions, Mark Arbib and the faceless men, the ever popular julia l i ed or maybe Carr for PM or Ruddy to challenge before June 30 for tax purposes, basically anything to get off the topic of coalition economic policy.

    Oh and stand by for the “the coalition doesn’t need to have costed polices” line.

  9. Steve777

    I don’t believe the Coalition actually intends to implement most of its policies. When it takes office next year, we’ll hear the cry “Oh woe is us! The Labor black hole is even bigger than we feared. We’ll have to ‘postpone’ some of our policies”, including the parental leave scheme. And given that most Coalition members don’t believe that we should be taking action on climate change, the 5% reduction target for emissions will be quietly ignored. I don’t believe that ‘Direct Action’ was ever a serious policy. All we’ll see will be a few token hand-outs to buy votes here and there. It was only ever a fig leaf dreamed up when the Coalition thought they needed a Climate Change policy to keep on side with its constituency.

    And most of the mainstream media will allow them to get away from it. Either I’m right or the Coalition really are a bunch of economic illiterates. And they accuse Julia Gillard of being ‘economical with the truth’.

    What we will get is: a return of Workchoices under a different name; a gradual winding back of Medicare; a reduction in funds for Tertiary eduction and Social Welfare; privatisation of the ABC and anything else the Government still owns; and pretty much open slather for moneyed interests.

  10. Scott

    Of course Abbott will be branded as deceptive…all politicians are. Goes with the territory. But it will be “Phoney” Abbott, instead of “JuLIAR” Gillard.

    I agree that the coalition’s policies have a slight wiff of populism to them. But let’s be honest…there are a lot more “thought balloons” than actual economic policies coming from the coalition at the moment. You don’t have to pay for an idea.

    But it is working in the polls, so I don’t see them stopping any time soon. Especially when the public have stopped listening to Labor.

    The real action will be in the election year.

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