The Coalition’s election campaign will be founded on a return to surplus, tax cuts aimed at low- and middle-income earners and a splurge of infrastructure spending to save seats in Victoria and Western Australia.
The tax cuts, designed to max out for earners on around $90,000 a year and taper off entirely by $120,000, aim to show swinging voters the Coalition can deliver for them and counter Labor’s promise of significantly higher tax cuts than those previously promised by the government. Delivered as offsets, the cuts will be handed to taxpayers at the end of the financial year in a lump, making them more visible to voters.
Significantly, however, the government is making a tactical gamble. It’s refusing to introduce legislation for the tax cuts this week in order to pass them before the election, in an attempt to convince voters Labor will be a threat to the cuts.
There’s also more than $4 billion in new infrastructure spending, highlighted by a $2 billion fast rail line between Geelong and Melbourne in the 2020s, a new fast rail bureaucracy to look at guilding fast trains elsewhere, and an expansion of the government’s retail infrastructure program (the Urban Congestion Fund).
The infrastructure spree plainly reflects the lessons of the Victorian and New South Wales state elections: that transport spending is crucial to winning voters’ hearts. For a government facing a nightmare in Victoria, the $1.2 billion in additional funding in that state — apart from the $2 billion for a fast train link that won’t be started until the 2020s — represents a plea to Victorians not to mete out the same treatment to this government they handed out to the state Liberals last year. Western Australia, which also looks grim for the Coalition, will get nearly $440 million in new funds for roads as well.
The government is also pumping another $200 million into a regional grants fund, spending money on regional broadband and mobile, and has committed another $1 billion over the 2020s for regional road projects. This is a loud signal to regional voters that only the Coalition, not One Nation, can deliver the pork. A billion dollars will also be pumped into primary healthcare in order to neutralise Labor’s scare campaigns on health.
The overall political strategy is to maximise the potential political benefits of tax cuts by aiming them at swinging voters, while hosing individual political trouble spots with a blast of cash: Victorians get a train, Western Australians get some roads, angry regionals get more pork, there’s a pre-emptive strike against Mediscare II, there’s a frontloaded injection of money ($720 million) to address aged care quality. There’s even a package costing $1 billion for an additional $3.6 billion in revenue from multinationals and high wealth individuals (although there’s no way to ever check whether these trade-offs ever really deliver). It’s as if the government compiled a list of issues, demographics and seats where it felt most threatened and worked out how much money it could aim at them.
A lot of that money could have gone to paying down debt rather than targeting interest groups but, overall, the government has been restrained in its spending (spending will actually fall as a proportion of GDP next year, although it’s still at about or just above the level inherited from Labor).
If the government is defeated at the election, Mathias Cormann can hold his head high as that almost unique political creature, the finance minister who kept control all the way through a government.
But the budget does continue the Coalition’s unrivalled record as the party of big taxation: tax is forecast to reach 23.3% of GDP next year, the highest since 2007 (not coincidentally, the last time we had a surplus) and a full two percentage points of GDP above the level inherited from Labor.
And the tax cuts are plainly designed to counter Labor’s relentless focus on wage stagnation — which even on the government’s own optimistic numbers, will continue to afflict workers into the 2020s (growth won’t exceed a miserable 3% until 2021, and even then real wages growth will be less than 1%).
As Crikey has noted regularly, the government has no idea what to do about stagnant wages except continue to claim there’s higher growth coming — a strategy continued in the budget — and to hope workers are satisfied with tax cuts much smaller than a decent wage rise.
The problem of a lack of overarching policy to deal with wage stagnation is symbolic of the budget as a whole. What’s missing is any kind of narrative or coherent story for the government beyond the plea to be re-elected because it can hand out tax cuts (mainly by returning bracket creep) and build stuff.
There’s certainly none of the “economic reform” narrative that the few remaining unreconstructed neoliberals in the commentariat have demanded. Like much of this government’s policies, it’s a very Howard-esque response to political difficulties: tax cuts, targeted spending for political problem areas, and claim the mantle of good economic managers.
In the end it didn’t work for John Howard. And Scott Morrison and Josh Frydenberg are no Howard and Costello.