If you try following the logic of Treasurer Joe Hockey’s economic arguments, you very quickly see why the government is failing to get its key messages through and has spent much of the year in a mess of its own creation.
The essence of the Hockey narrative for much of the year is this: Labor left an appalling fiscal legacy, but the economy is too weak for a stringent and dramatic return to surplus, so the budget was about putting medium-term savings and structural reforms in place that would begin the fiscal repair task, while infrastructure spending would provide the immediate stimulus required to spur growth. But Labor, vandals that they are, are both opposing those medium-term savings and, as if their evil knows no bounds, trying to sabotage infrastructure spending through their opposition to asset recycling, designed to get the state governments spending. And Labor, so the narrative goes, even dawdled on free trade agreements, which will deliver a big benefit to the economy over the medium-term.
Hockey has remained wedded to this narrative even after Wednesday’s terrible GDP number — indeed, for Hockey the evidence of softness in the economy reinforces the need for Labor to support asset recycling and encourage Premier Daniel Andrews to build the East West Link (although Hockey has opened the door to other big projects Andrews might want to bring forward, provided they can get started pronto). Hockey, like Wayne Swan, says he won’t be “chasing down” falling revenue in the forthcoming Mid-Year Economic and Fiscal Outlook.
But the Hockey narrative doesn’t stand up to the simplest scrutiny. For starters, Hockey himself actually made the budget situation significantly worse. Between the election and the end of 2013, the government took decisions that worsened the deficit by more than $20 billion over four years. It dumped the carbon price, a move which the 2013-14 MYEFO acknowledged would cost $6.3 billion in lost revenue. It dumped the mining tax, which MYEFO acknowledged would cost $3.4 billion. And it walked away from a series of tax and superannuation measures already announced by Labor that cost $3.6 billion in lost revenue.
Each of those figures is just for forward estimates — they were all ongoing measures. As revenue sources, they might go up or down, but they were built into the budget — the carbon price might have fallen in line with international trends, and the fall in iron ore and coal prices would have reduced mining tax revenue this year, but the removal of some superannuation tax concessions was designed to provide long-term savings that would make a substantial difference a decade hence.
Then there was the $8.8 billion handout to the Reserve Bank, a one-off that substantially worsened the 2013-14 deficit.
So when Hockey laments that Labor is blocking his “medium-term” fiscal repair job, he hopes voters will ignore that he made that job substantially harder himself, purely for political reasons — especially the grossly irresponsible act of walking away from measures like ending the Fringe Benefits Tax novated lease rort, and the tax on superannuation incomes over $100,000, which his predecessors had already announced and worn the political pain from. Hockey has not merely wasted the Coalition’s political capital, he chucked away measures Labor has burnt political capital on for the good of the budget.
Then there’s what Hockey calls his plan to “significantly increase infrastructure spending over the next few years” — the equivalent of eight Snowy Mountains Schemes, he likes to boast. As a number of commentators have pointed out, in fact the government is simply spending on the projects it inherited from Labor, albeit with a greater bias towards roads, which self-confessed Luddite Tony Abbott seems to think is all that 21st century infrastructure involves. Given infrastructure lead times, whatever stimulus is delivered to the economy over the next 12 months will be entirely because of former infrastructure minister Anthony Albanese and Labor, and not because of Abbott, Hockey or Deputy Prime Minister Warren Truss.
And as we know from the Productivity Commission, free trade agreements are good for diverting trade, but their actual economic benefits are far harder to identify, if they ever materialise at all. Don’t hold your breath waiting for a Chinese consumer-led recovery.
That leaves Hockey urging consumers to spend up big for Christmas in order to give the economy a shot in the arm — while warning of the terrible damage Labor is doing to the economy and the budget.
In opposition, Hockey long insisted the mere election of the Coalition would provide a surge of business and consumer confidence that would spark higher economic growth and get the animal spirits of the economy stirring. If it ever did, Hockey killed all that off himself with his budget communication strategy. Now he’s left with Plan B that consists of wishing consumers a merry Christmas.
No wonder the dogs are barking about his job.