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Federal

May 23, 2014

How the government bumbled into a budget disaster

A series of errors by the government's strategists have turned the 2014 budget into a political disaster. The narrative has gotten away from Tony Abbott.

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Until last week, the worst budget in political terms in the modern era was John Dawkins’ 1993 budget, delivered after “the sweetest victory of all”, which lifted indirect taxes, cut spending and delayed the L-A-W tax cuts. It was called “indefensible” by the then-ACTU president Martin Ferguson and sparked a caucus revolt, led by a newly elected Wayne Swan.

The 2014 budget has yet to spark a party room revolt, but in political terms it makes 1993 look like a masterwork. And it’s the product of a series of errors that will need to be fixed if the government is to get back on course.

The one success of the budget has been in convincing voters there’s a real crisis. Treasurer Joe Hockey and Finance Minister Mathias Cormann were successful in preparing the groundwork for the budget by repeatedly emphasising the fiscal chaos Labor left behind: over half of voters believe there’s a “budget emergency” of some kind, according to this week’s Essential poll — including 39% of Labor voters. One of the repeated failings of the Rudd and Gillard governments was an inability to explain to voters what exact problem they were trying to solve with controversial policy proposals, but Hockey and Cormann convinced more than half of voters that there was a budget problem.

But the budget messaging process descended into chaos well before the budget. A key moment was the leaking of the deficit levy to Sam Maiden at News Corporation. There was no clear policy detail of the levy, and no confirmation of it, so the government couldn’t articulate any position while debate erupted about it. One of the things the Howard government became good at was ensuring that backbenchers were given the tools they needed to sell difficult policies — MPs would be given talking points and some background, including the financial impacts in their own electorates if possible, in order to respond to worried constituents. But in this instance, Coalition MPs were given nothing because there was literally nothing to give them in the absence of a settled policy.

Worst of all, it was a clear broken promise.

It was here that the first major mistake was made by the Coalition: instead of accepting that the budget would require the government to break faith with voters and explain it as being in the national interest, the preferred line was to insist that a deficit levy, or petrol excise indexation, was no broken promise, either because no commitment had been given about no new taxes, or because they weren’t a new tax, or because, as we heard post-budget, the Coalition had before the election made a kind of bedrock promise, beneath any specifics, about fixing the budget.

Call this the reverse dog whistle — Hockey and Abbott claim to have been communicating about promises at a frequency evidently too low for voters to hear.

The core of these arguments is that voters are wrong to think there’d been any broken promises. And no politician is going to get far by insisting voters are wrong — the effective political messages are ones that reinforce, not contradict, voter perceptions. But, having achieved office partly on crucifying Julia Gillard for breaking promises, and having seen Gillard unsuccessfully try to cop the broken promise charge sweet and argue the merits, the Prime Minister and Treasurer spent much of their time during the post-budget “selling” period arguing the toss over whether they’d broken promises, rather than explaining the budget.

The second error was a more culpable one and reflects badly on the Prime Minister’s Office and the Treasurer’s staff. In the course of selling the budget, both Abbott and Hockey made errors on the detail of high-profile measures — Hockey on the Medicare co-payment, Abbott on university fees and the impact on the states of cuts to education and health funding indexation. The impression was created that the government didn’t understand the very policies it was inflicting on voters. If Abbott and Hockey couldn’t get it right, could you blame pensioners for thinking their pensions were under threat, or low-income earners for thinking the Medicare co-payment had started already? This week it seemed the Prime Minister’s Office needed to issue a Nixonian “that statement is no longer operational” clarification as Abbott winked his way from error to error.

“There’s one more thing that Howard and Costello never faced: social media.”

This may reflect the nature of the budget preparation: there’s a persistent rumour in Canberra that some key decisions weren’t made until very late in the process, just days out from the budget — in particular, the decision to dud the states of health and education funding. That would explain why Abbott got it wrong on when the states would be hit by funding indexation cuts, and why there was no consultation with enraged premiers.

The third key error was also a matter of poor judgment from the Coalition brains trust. Releasing the Commission of Audit report less than two weeks before the budget confused the economic fantasies of an old, rich businessman with actual government policy, especially in relation to the pension, which Hockey had been publicly musing about. While Hockey, Cormann and Abbott were repeating ad nauseum that the Commission of Audit was “to the government, not by the government”, the message appeared not to get through to pensioners. When a wily old campaigner like LNP backbencher Warren Entsch warned that the Commission of Audit had “frightened the bejeezus” out of pensioners, governments strategists should have realised there was a potential for the budget to simply snowball into Tony Shepherd’s obsessions, not be distinct from it.

The fourth error wasn’t the politics, it was the policy of the budget. As Howard and Costello showed in 1996 and 1997, you can get away with a harsh budget — even with breaking promises — if you show it’s in the national interest and you show there’s equity in the harshness. But there was no equity in the budget — instead, it looked like a Coalition hit list of groups that had annoyed it or whom they simply enjoyed beating up on — the unemployed, poor foreigners, the ABC, low-income earners — while the wealthy enjoyed ever-burgeoning tax breaks and companies were given tax cuts. Even Liberal voters, according to Essential, disliked measures like deregulating university fees and raising the pension age and thought the well-off came out much better from the budget than the poor.

Moreover, it delivered pain without apparent purpose. The budget did not return to surplus within the forward estimates, because the government refused to target corporations and high-income earners, depriving it of a clear benefit to which it could point as a product of the pain.

There’s one more thing that Howard and Costello never faced: social media. News Corp might be desperately trying to prop up the budget, and in the process demonise what’s left of their readership, but the budget has been copping a hiding on social media, both of snark and factual criticism, from the moment of its release. That creates a feedback loop in which the mainstream media report how social media has covered the budget (why, who on earth knows, but they do it), intensifying the remorseless criticism of it.

Some of this can correctly be blamed on this being the government’s first budget. None of the errors reflect fatal flaws in the government’s decision-making process. But all of them reflect internal problems and misjudgements that need to be examined. An improving economy could make voters forget all the pain in six months. But the government can’t afford another debacle like this.

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