So, finally, we have a Coalition fiscal policy made up of more than slogans and nonsense about “budget emergencies”.
Courtesy of yesterday’s smooth, effective campaign launch, we have a much clearer idea of the Coalition’s approach to the budget.
First, forget all about the “budget emergency” rubbish from Tony Abbott earlier in the year. Nationals leader Warren Truss had earlier announced a commitment to spend hundreds of millions of dollars on bridges in regional areas; Abbott himself announced a new middle-class welfare measure, revealing the Coalition would direct $100 million to self-funded retirees via the Commonwealth Seniors Health Card income threshold, which will be indexed to enable more self-funded retirees to retain taxpayer assistance despite generous retirement incomes (that’s meant to soften the fear that the paid parental leave levy will be a “great big new tax” on retirees). He also announced a major $200 million investment in additional dementia research and an $80 million loan program for apprentices.
Sure, by comparison with the election campaigns of the John Howard years, it’s small beer. But for the last three years Abbott, Andrew Robb and Joe Hockey have been suggesting we’re at crisis point. Turns out, there’s plenty of cash to throw at a key Liberal constituency, self-funded retirees, even if it’s at the expense of low income earners who’ll be punished with a tax slug on super contributions.
However, it was a set of commitments Abbott made in relation to fiscal policy that goes some way to clarifying the Coalition’s budget approach.
According to Labor’s pre-campaign economic statement and the Pre-Election Economic and Fiscal Outlook from Treasury and the Department of Finance, the Commonwealth will return to surplus in 2016-17. After claiming the Coalition would get rid of Labor’s waste — “big”, “small” and “ridiculous” — Abbott yesterday announced by the end of his first term his government would be “on track to a believable surplus”. At best, this would be a surplus in 2016-17, the same year as Labor, or perhaps even later than Labor.
This is despite Abbott committing to producing a “better bottom line” than Labor before and during the campaign.
So Abbott will oversee a further increase in Australia’s debt, despite the incessant rhetoric of recent years from Robb and Barnaby Joyce — the man waiting patiently to knife Truss for the deputy prime minister job — that the gnomes of Zurich were about to send the bailiffs around. Debt will still be as big as the ALP and Treasury says it will be over the forward estimates indeed, even bigger if the economy stumbles between now and then, or the dollar remains stubbornly close to, if not at parity with the US dollar, or if Abbott, as he’s left room to do, decides to delay the return to surplus beyond 2017.
“… Abbott has committed the Coalition to no more stringent a fiscal policy than Labor, which is a good outcome for an economy that is below-par even with interest rates at record lows.”
Abbott’s other fiscal commitments were directed at the year 2023, which would be in a fourth Abbott term, when he said the Coalition would have a surplus of 1% of GDP and defence spending of 2% of GDP (roughly around $40 billion in nominal terms, compared to $26 billion now). Turns out there’s plenty of money for giant American arms companies, where around a third of our defence capital spending goes — though they’ll have to be patient.
Abbott also committed that the size of government would be smaller each year, although he didn’t specify whether this related to expenditure or taxation.
If this commitment relates to taxation, it will mean greater spending cuts in order to achieve a surplus — tax as a proportion of GDP is forecast to increase from 22.2% (the highest it has been since the last Howard government budget) this year to 23.6% in 2016-17. A quick calculation suggests the Coalition will need to find another $23.5 billion in spending cuts over the forward estimates on top of its existing savings task, if it is to reduce tax revenue each year by 0.1% of GDP and still reach Labor’s projected surplus. Maybe Bank of America Merrill Lynch’s chief economist Saul Eslake, who earlier this year nailed Abbott when he compared him to Malcolm Fraser, was right about the vast scope of the savings task facing Abbott?
Then again if Abbott was referring to reducing the size of expenditure each year, that’s dead easy: Labor’s spending outlined in the economic statement already declines from 25.3% of GDP to 24.4% of GDP by 2016-17 in Treasury projections anyway.
What’s important in all this is that Abbott has committed the Coalition to no more stringent a fiscal policy than Labor, which is a good outcome for an economy that is below-par even with interest rates at record lows. While the Coalition continues to talk the talk of the fiscal disciplinarians, it’s walking the same walk as Labor on returning to surplus and sensibly ignoring the blandishments of many on the Right who want to see austerity-style cuts and a punitive slash-and-burn fiscal policy.
Speaking of whom, it’s odd, but the fiscal hairshirts were thin on the ground this morning in response to Abbott’s commitments. Where was Judith Sloan, who has excoriated Labor’s spendthrift ways and its politicisation of Treasury? What about Henry Ergas, scourge of the Left and its chaotic budgeting? Where was David Murray, advocate of fiscal self-flagellation? Not a word on the Coalition declaring a unity ticket with Labor on the path back to surplus.
Still, forget three years of hypocrisy and inconsistency: it would have been downright disastrous for the economy if the Coalition had proposed to act as though their rhetoric in any way reflected reality. Instead, they’ve opted for sensible fiscal policy that serves the needs of the economy, instead of making the economy serve an ideological fetish about fiscal policy.
Now to hear from Hockey and Robb about the “emergency” level of interest rates and the perils of cutting debt to quickly and too deeply. A Damascene conversion on the way to September 7 and government?