It took 10 years, but Peter Costello’s legacy no longer haunts the budget. Ironically, it was his own side of politics that finally exorcised the boom-time doctrine that tax cuts were the only way to stimulate the economy. There is no mention in Scott Morrison’s second budget speech of the ”burden” of tax.
The 2017 budget represents the fundamental repudiation of Costello’s fiscal strategy and the complete abandonment of Tony Abbott’s political strategy. Morrison has offered a new tax on the big banks, a new 0.5% Medicare levy and a range of new housing policy measures that, while not as simple or effective as reforming negative gearing or the capital gains tax discount, will net the government a tiny $1.1 billion over the next four years.
The word “cut” barely appears in the Treasurer’s speech. There is no mention of the need to cut spending, rein it in or take and axe to the public sector or the welfare budget. The cuts are in the budget of course, with university students getting hit the hardest. But where Costello and Hockey tried to make a virtue out of such pain, Morrison is presenting a softer, gentler face as he burdens young students with even higher debts to repay before they can start saving for their first house.
Anyone who chose the word “invest” for their budget night drinking games will probably have to take the day off work tomorrow. In the era of good debt and bad debt it now seems that all government spending is an investment and only proposals from the opposition will need to be chalked up on the “bad debt” side of the ledger. Having embraced the Keynesian economic principle that its public spending, not tax cuts, that boost economic activity, Morrison has gone all in. His budget speech assures us that his government is proud of “investments in science and innovation”, he assures that he “will invest an additional $115 million in mental health” and of course he believes that “it is important to invest in infrastructure”.
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Gone are the Costello days when spending was a drain on the economy that “crowded out” the private sector. The modern Liberal Party assures us that it “will continue to invest record amounts in education”. You get the picture. But while the Turnbull government is pivoting radically from the themes of its last three budgets, there is still no indication that they are willing to jettison their most expensive baggage. While there is an unexpected great big new tax on the biggest banks, the Turnbull government seems determined to stick to its uncosted plans to slash the corporate tax rate. For the big banks it seems that the Tax Office giveth with one hand and taketh with the other.
Despite promising just last month that housing and energy affordability would be at the heart of the budget, in reality the measures announced are as peripheral to the budget as they are unlikely to lower the cost of living. The government seems to be betting that housing will vanish as a political issue before the next election. That might be the most optimistic assumption in the budget. Which brings me to the assumptions about wage growth. At the heart of the forecast that the budget will return to surplus in four years (note: the last three budgets all said we were four years away from a surplus) is the heroic assumption that wage growth is set to more than double. While this will no doubt embolden the Australian Council of Trade Unions in coming wage cases, the Turnbull government is still stuck with the political problem of defending cuts to penalty rates.
The Treasurer opened his speech with the declaration that “this budget is about making the right choices to secure the better days ahead”. He made no mention of climate change in his speech, nor of his government’s decision to “invest” $1 billion in Adani’s enormous new coal mine. Whether voters agree with the choices made by this government in this budget, it is now quite clear that Australians voters have chosen to pay more tax and to spend more money on the services they value. Now that that the ghost of Costello has finally left the building it seems politicians from all parties can now get on with a good old-fashioned democratic debate about better and worse projects and policies to spend the money on.
While some of the measures in the 2017 budget were specifically designed to take the wind from the ALP’s sails, there is now no doubt that the 2019 election will be fought on Labor’s side of the course.