Some lessons from the 2012-13 budget:
1. The budget media cycle is now different.
The budget cycle used to run over a course of set pieces: the budget lock-up, the Treasurer’s speech, the Treasurer’s Press Club address the following day, the Opposition Leader’s response two days later, and the shadow Treasurer’s reply the following week. The Prime Minister and Treasurer would usually embark on a long round of budget-related media events, with the focus of the political cycle on economic issues for up to a fortnight.
The cycle is now considerably shortened, condensed more or less to three days, from the Tuesday through to the Thursday night. After that, it begins fading from the media. To counter that, this government has elevated the pre-budget leak process, revealing most of the key details ahead of time, even distributing budget documents prior to the lockup. Shortened at one end, the government has lengthened the process at the other by unveiling key measures in the days before the budget.
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The result is poorer quality coverage and less scrutiny: more of the coverage is conducted in the twilight period before the Budget where governments have announced measures but decline to discuss them in detail, and even full-fledged announcements are conducted without the context of economic forecasts and the overall budget position. It’s cynical stuff from Labor, but the media are complicit in it.
It also means it’s time to dump the lock-up, which is now just a piece of theatre coupled with media management.
2. The government’s credibility on tax reform is shot
Out of the Henry tax review, what do we actually have left by way of implemented policy? With the scrapping of the standard deduction and 50% discount on interest, there’s little in the way of personal income tax reform. And the mining tax revenue has been downgraded further, by a total of $900 million over the next three years. Recall that the final mining tax package spending measures were significantly greater than the forecast revenue even before the latter were downgraded.
The withdrawal of the corporate tax cut would have gone a significant way to remedying that, but instead the government chose to splash out on handouts to low and middle-income earners. With the removal of the corporate tax cut, there’s no longer a broader policy rationale for the mining tax other than using the proceeds of the mining boom for handouts – exactly the mistake the Howard government made, and one we’ll be paying for for a long while to come. For an otherwise strong economic manager, this government’s handling of the mining boom has been its worst policy mistake.
3. Can you be simultaneously stimulatory and contractionary?
If forecasts are accurate, next year will see the first fall in nominal government spending since at least the 1970s and the biggest fall in real terms in that time. Some of that is the result of shifting spending out of next year and into this year and the following year, but it also reflects the government keeping the lid on its programs through the ERC process. Spending as a proportion of GDP in 2010-11 (i.e. the year before this one, which the government wasn’t frontloading spending into) was 24.7%; it falls from 25.1% to 23.5% between this year and next, but then only rises back to 23.7% of GDP the year after, suggesting a genuine and substantial contraction.
Yet much of the coverage today is about the stimulatory nature of the budget. Fairfax’s Tim Colebatch, who has been railing against the government’s return to surplus for weeks, was this morning complaining about how the government was “splashing cash around”. The sainted George Megalogenis claimed the government had returned to the “cash-splash levels” of the financial crisis. So which is it? Or is the contradiction in the coverage rather than the budget itself?
4. This is a difficult budget for the Opposition
Whether to support the family and income support payments or not is already vexing the Coalition, with Tony Abbott struggling this morning to explain what position the Opposition would adopt and why. But backing them will make Joe Hockey’s difficult life even worse, particularly given Tony Abbott has committed to his own corporate tax cut (there appear to be two types of budget measures now, government budget measures like corporate tax cuts or family payments that aren’t “fair dinkum” and exactly the same measures which, when proposed by the Coalition, somehow are). The government’s credibility as an economic manager is a distant second to that of the Coalition, but not when the issue is economic management in the interests of working families, where Labor is far more competitive, and where Labor’s tactics are now pitched at.
5. Wayne Swan will never get appropriate credit as Treasurer
For a government that knows it will get pilloried by sections of the media no matter what it does, this one has stuck resolutely to the task of responsible fiscal management under the sort of political pressure that saw John Howard panic and turn on the money hydrants. That may be one of the reasons this government will last barely half as long as Howard’s did, but Wayne Swan deserves recognition for it. He’ll never get it, and certainly not from voters. His critics insist anything good that has happened in the Australian economy since 2008 has been because of China, or the mining boom, or Peter Costello, or luck, or the RBA. Anything negative has, naturally, been fully attributed to Swan’s own incompetence. But Swan and his department have repeatedly made the correct calls since 2008, often only being vindicated in hindsight. This budget, which is by no means without faults, may well be another example.