Budget 2014: Dishonest and cruel

In the lead-up to Federal Treasurer Joe Hockey’s inaugural budget speech last night, Twitter offered up a typically anarchic deluge of three-word phrases (#ThreeWordBudget) summarising the budget for 2014-15.

Some were witty.

Some were cutting.

Some were in earnest.

The Treasurer and the Prime Minister would have you believe that “contribute and build” is a fair and reasonable three-word synopsis of their first budget. If you believe that, you’d probably believe anything. Given the volume of election promises the Coalition is seeking to renege on, the extent to which it has squibbed its own illusory “debt crisis” and its plans to extract much of its “contributions” from some of the least fortunate people in Australian society, a fairer three-word description of the budget would be”dishonest and cruel”.

Dishonesty

Let’s first consider the Coalition’s fundamental dishonesty in delivering this budget, starting with the pre-election promises it has broken. Just days before the September 2013 poll, Tony Abbott made an explicit pledge to the Australian people on national television regarding funding cuts:

“No cuts to education, no cuts to health, no change to pensions, no change to the GST and no cuts to the ABC or SBS.”

Quite astonishingly, the Coalition’s first budget either explicitly breaks or creates conditions encouraging governments to break every single component of that pledge:

  • Planned needs-based Gonski school funding is to be reduced by tying federal government contributions to CPI.

  • Planned hospital funding provided by the federal government is being cut by $1.8 billion over four years.

  • Pension rates are to be reduced from 2017, with calculations to be based on the CPI rather than by the average male wage.The pension age is also to be increased to 70.

  • No announcements were made regarding an increase to the GST, but the proposed cuts to federal education and health funding have led Queensland Premier Campbell Newman to speculate that this is a debate the states may now be blackmailed into kickstarting.

  • Base funding of both the ABC and SBS is to be cut by 1% over four years.


  • Tony Abbott also made consistent promises in a series of interviews and press conferences prior to the September 2013 election on tax, well documented by ABC FactCheck. The phraseology used by the then Opposition Leader varies, and is certainly open to semantic interpretation, but fundamentally the Australian people had every right to believe that a Coalition government would not introduce any new compulsory contributions to public revenue, regardless of what they were called or how they were framed. In the budget, two such measures have been announced:

    • A 2% “deficit levy” on Australians with incomes over $180,000/year, imposed from July 1st until 2017.

    • A $7 Medicare “co-payment” for each visit an Australian makes to a GP.

    The Coalition has not just been dishonest in relation to its pre-election promises. The primary reason offered up by the Abbott government for the cuts, new taxes, tax increases and welfare claw-backs in the budget is the “budget emergency” the government alleges was left behind by the Rudd and Gillard Labor governments. That Federal Labor left behind a federal budget in deficit is not in dispute; nor is the more general observation that Treasury has a mid-term structural revenue problem on its hands. However, numerous spending and revenue decisions outlined in the Budget seem to suggest that the Coalition that does not really believe that the “budget emergency” is much of an emergency at all. For example:

    • The pre-stated Coalition decision to abolish the MRRT (<$500 million) and carbon taxes ($7 billion), significantly reducing government revenue

    • An additional $245 million to extend the school chaplains scheme for another five years

    • An additional $20 billion to establish a new national medical research fund, funded by the new Medicare GP visit “co-payment”/tax

    • A presumed increase of over $1 billion to fund the Coalition’s proposed Paid Parental Leave (PPL) scheme. Detailed costings for the slightly cut-down (maximum benefit payable reduced from $150K to $100K) scheme, expected to start in July 2015, were not confirmed in the budget.

    • $5 billion in new roads funding

    The words “crisis” and “emergency” imply there is a burning need to get the budget back into surplus as soon as possible: these new spending measures and abolitions of revenue streams suggest that the Abbott government does not think that is necessary. More generally, as economist Stephen Koukoulas has outlined – thanks to its proposed new spending and tax measures, the Abbott government arguably looks set to preside over a “bigger government” in real terms than Labor did under Rudd and Gillard during 2007 – 2013.

    Cruelty

    The Abbott government’s “contribute and build” budget theme is coupled with a narrative arguing that Australians from all walks of life need to contribute to address the “budget emergency”. As the Treasurer helpfully instructed in his budget speech: “we are a nation of lifters, not leaners”. Everyone must lift. Leaners are to be left by the wayside, even if they are fundamentally unable to “lift”. The already mentioned $7 Medicare co-payment is a regressive consumption tax which proportionately impacts people on low incomes and those who need to visit their doctor frequently more than others. For people struggling to make ends meet, it also acts as a disincentive to visit the doctor. Throaty cough? Worried about that strange chest pain? You’d better write it off as indigestion and think twice about visiting your GP, because if you are sweating on your next payday arriving to cover food, rent, or petrol costs, you simply might not be able to afford the visit.

    Perhaps the single most controversial and draconian initiative announced in the budget is the government’s plans to prevent people under 30 from accessing unemployment benefits for the first six months of their unemployment. Under the proposed cyclical regime, recipients will effectively only be allowed to receive six months worth of unemployment benefit support per year. The mind can only boggle at the potential repercussions of this policy. What do you do as a young person if you can’t get a job for that six month period? Sponge off family and friends, destroying your relationships and steering them into financial stress as well? A lot of young people due to circumstances beyond their control don’t have that option or would not consider that option seriously. Do they have to beg for money during that time? Live on the streets? Slash their wrists and be done with it? Unemployment may currently remain at relatively low levels (5.8%), but is expected to rise in the next year, and anybody who thinks it is easy to get a job without experience or skills in today’s brutish economy is clearly out of touch with the real world for people living in suburban and rural areas. A young person can easily apply for 100 jobs within a short timeframe with the best intentions and not get a single positive response. If the Abbott government has its way, they may not even be able to afford to attend the interview if they are lucky enough to – at long last – receive that elusive phone call.

    Other budget measures target – either intentionally or unintentionally – other marginalised groups within Australian society. Sole parents and parents with disabled or high needs children will be hit hard by proposed changes to Family Tax Benefit B (FTB-B), which will now cut out once the youngest child in a family reaches 6 years of age. Farmers and people living in rural and regional areas who rely heavily on the use of their cars to live and work will be hardest hit hard by the re-introduction of excise indexation. Furthermore, the ACT economy and other regional areas hosting federal government offices look set to suffer in the coming years, as cuts in the budget directly result in the loss of over 2000 additional federal government jobs.

    The only saving grace for struggling Australians is that this budget still has a long way to go before becoming legislated reality, and is certain to face some stiff (if mixed) opposition in the Senate from Labor, the Greens and indeed the Palmer United Party. This is a budget and a government in desperate need of civilising.

The new “bell-weather” seat for Rudd Labor

In today’s edition of The Australian, Dennis Shanahan reported the results of some rather interesting marginal seat polling conducted by Newspoll over the last weekend. Of particular interest to me are the reported results in Lindsay, a seat that I have spent over half my life in. The Newspoll results suggest that Labor’s primary vote has collapsed to just 34% in that seat, and that the Coalition’s vote has surged to 47%. The Greens tend to poll rather poorly in Lindsay, and conservative fringe parties such as the Christian Democrats and One Nation tend to poll well, so these results, if they can be relied upon, suggest that Labor’s David Bradbury and the Rudd Government could be in some real trouble.

While I agree with Mark at Larvatus Prodeo and Possum when they suggest that the Lindsay polling results were irrevocably contaminated by the weekend state by-election in the seat of Penrith, I feel its too simplistic to dismiss the poll entirely. Federal Labor is, make no mistake, on the nose with Howard’s battlers at the moment. Tony Abbott’s straight-talking approach intrinsically appeals to that peculiar strata of the population who thought they saw someone fresh with a dab of economic blue-blood in Kevin Rudd in 2007, and switched their vote from the Coalition to Labor. Abbott is seen to be a man’s man in a way that neither Brendan Nelson nor Malcolm Turnbull was, and Rudd, at least to many, has revealed himself to be a bureaucratic ditherer who does not speak their language.

There are no simple answers to this problem; there is little doubt that Federal Labor’s pollsters and advisors are burning the midnight oil trying to find it. The Prime Minister needs to pay more attention to people in seats like Lindsay and endeavour to do a better job of explaining the achievements of his government to them, and why they should vote for him again.

Interest rates and election dates

In the lead-up to the November 2007 federal election, there is little doubting that interest rates played a crucial role on shaping the attitudes of voters towards the Howard Government. With Howard, the poisonous element was his controversial promise to keep interest rates low. With Rudd, the poisonous element is the rather prolonged rollout of his government’s stimulus package – particularly the “Building the Education Revolution” (BER) component. Although the government probably has its political hands full with a few other things just at the moment, it would be surprising if it didn’t have one eye on the inflation outlook when deciding precisely when to call this year’s election.

As a result of the continuing financial instability in Europe and the recent flight of investors away from the Australian dollar, the RBA Board decided to leave the cash rate as is at this morning’s meeting, bucking the recent trend (three consecutive 0.25% increases in the last three months):

In Australia, with the high level of the terms of trade expected to add to incomes and demand, output growth over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing. Inflation appears likely to be in the upper half of the target zone over the next year.

Consistent with that outlook, and as a result of actions at previous meetings, interest rates to borrowers are around their average levels of the past decade, which is a significant adjustment from the very expansionary settings reached a year ago.

Despite the comment on inflation, it seems likely that with global financial instability still floating around in the short-term, the RBA is unlikely to be too adventurous on interest rates in the next few months. Could this be the carrot that Federal Labor decides to seize on and call a August election?

ELSEWHERE: Antony Green’s excellent analysis from January this year corroborates this thesis, suggesting that an August poll date is starting to look odds-on.

Class-war and the Rudd Labor Government

It’s been quite a while since we last heard the term “class-war” bandied about by political commentators in relation to Australian Federal politics. It’s a lazy, archaic term; a term probably last reasonably applied amongst the Left in relation to the unabashedly pro-business policy-making of the Reagan/Thatcher era, and amongst the Right around the same period, when centre-left parties around the world were still a pragmatic streak or two short of the “Third Way”. In cases where “class-war” is dragged like the decaying corpse of a phrase it is into mainstream political debate today, it is most often done by folks who are prone to slander and not particularly interested in balanced analysis. It’s a term that means next to nothing to most ordinary Australians, and only really serves as a “nudge-nudge, wink-wink” to fellow one-eyed travellers and an admission of ideological conceit.

Interestingly, just in the last few months (and particularly amongst the News Limited stables), the term has started popping up around the traps in commentary on the Rudd Government. Andrew Bolt picked up the cudgel a couple of months ago in relation to the government’s comments on executive pay, and David Penberthy from The Punch described the government’s budget just last week as a “class-war budget” – whatever that means. I suspect David Penberthy wouldn’t know what a “class-war budget” looked like even if the Russians managed to reanimate Lenin and parachute him into the next preselection contest in Wayne Swan’s electorate. A number of commentators including Paul Williams from the Courier Mail and Peter van Onselen from The Australian have another angle – denouncing the government’s proposed Resource Super Profits Tax (RSPT) as an act of “class-war” in their recent contributions.

But what is a “class-war” policy? A “class-war” policy, I think, can be reasonably defined as a policy that has been construed to explicitly favour the poor at the unjust expense of the rich, or to explicitly favour the rich at the unjust expense of the poor. Now frankly, I don’t think there would be many people out there who really believe that the Rudd Government has tended to explicitly favour the poor at the unjust expense of the rich during its last two and a half years in office. Comparing Rudd Labor’s record with that of the previous Howard Government, for example, it would be a rather difficult task to successfully argue that the Prime Minister has been more of a socialist than economic conservative – unless you happen to believe that John Howard was a socialist too.

Take the example of the RSPT, which Wayne Swan does a splendid job of justifying here (hat tip: Peter Martin). This is a measure that seeks to obtain for the people of Australia (both rich and poor) an increased, “fairer” proportion of the profit share from the fabulously successful mining sector. Given that we are talking about companies that earn their stratospheric profits by digging resources up out of territory that is owned by all Australians, and the nation itself is in the process of digging its finances out of a hole bored by the GFC, I really don’t see how this policy can be reasonably construed as a “class-war” policy. This is a specialised measure targeting a specialised industry announced in trying times, not a measure targeting a certain “class” of people or organisations or that benefits the poor at the expense of the rich.

In any case, if the RSPT really is a brutal act of “class-war”, it is surely the first such act where one of the most prominent victims has seen fit to declare both his support for (2 months ago) and his opposition to (today) his attackers.

The Clive Palmer vs. Clive Palmer “class-war”. Now that is a John Woo film begging to be made.

ELSEWHERE: Mark from Larvatus Prodeo is equally bemused by all this “class-war” claptrap.

Whatever you do, don’t say billion

It was getting a little absurd and starting to backfire dramatically, so the Prime Minister and the Treasurer were forced to halt their “billion ban” charade in parliament today.

As has been previously observed:

It’s been suggested Kevin Rudd would not utter the phrase ”$300 billion” for fear his words will be used in coalition advertisements during the next election campaign.

Mr Rudd said debt would peak at “around about 200, our gross debt at about 300” in 2013-14.

Asked to explain 200 or 300 of what, Mr Rudd responded: “These are billion figures.”

The genius (whoever they are) in Federal Labor’s leadership team who seriously believed that the government could get away with its senior members not saying the word “billion” for the next 18 months or so must be living on Planet Wacky. It’s a little disturbing that this wacky idea was even successfully sold to the men who are overseeing the nation’s response to the financial crisis, and that they ran with the “billion ban” for a day or two. The Coalition would be nuts not to make fun of the Prime Minister’s use of “200” and “300” in their election campaign next year.

Madness.

Our very own red rooster and his big red numbers

Over the course of the last week, the expression on Treasurer Wayne Swan’s face has been even more deadpan than usual; so deadpan, in fact, that its as if someone from Treasury has swung an almighty great frying pan across his gloomy mug. In a sense, that is of course just what has happened. There is no tougher gig to have at the moment. Even before one considers all the election promises that Rudd Labor made back in late 2007, and the bold stimulus measures introduced during the past six months in an attempt to ward off the worst of the GFC, the government is starting behind. The tumultuous financial conditions have reduced profits, spending and incomes across the country, wiping a sizable $210 billion from the government’s anticipated revenue. Let’s be clear: whether the federal government was headed by Labor, the Liberals, or anyone else, it would have delivered a budget in the red in 2009-10 like the Rudd Government has. The buck must stop with the Treasurer, (if not he, then who else?), but its fair to say that a significant portion of the big red numbers being bandied around are not Mr. Swan’s or indeed Federal Labor’s fault.

Casting a considered eye over the opinions flying around in the mainstream media, it would seem that this is a Budget that is hard for people to support. It mixes almost evenly boosts and blows, to the point that some commentators believe it to be a confused budget, a budget that tries to stimulate the economy even as it withdraws funds from some, possibly lulling it back to sleep. There are welcome measures, such as the significant increase in payments to single pensioners, the introduction of parental leave (even if it is delayed until 2011), and the urgently needed $22 billion package of infrastructure measures. On the flip side of the coin, there are a few downright bafflers. The planned lifting of the pension age to 67 is a positively nutty idea, and gives credence to the accusation that Treasurer Swan is living blindly on the teat of the bureaucrats in Treasury. The means testing of the private health rebate is a questionable measure, given that it is likely to encourage people to ditch private health insurance and increase load on the public system. For once, Malcolm Turnbull might be on the right track by suggesting that raising excise on tobacco is a more sensible measure and can deliver the same amount of revenue.

It will be interesting to observe how Messrs Rudd and Swan react to Turnbull’s suggestion, and indeed to see how the public reacts to the Federal Opposition’s constant carping about the level of national debt. One does get the sense that the broader public is quite concerned about the hundreds of billions of dollars of public debt that Australia is now swimming in. This is a real concern, but it is a concern that is being simplistically tended by the Coalition. For his part, Malcolm Turnbull seems determined not to utter a word about the possibility (nay certain fact) that his team would also find itself in billions of dollars of debt if it were in government now. What remains to be seen is whether or not the sheer magnitude of the red numbers here are enough to get some people to lose faith and start to consider the opposition as a viable alternative government.

Make no mistake, this is the start of Malcolm Turnbull’s big chance.

Setting a date with a bullet train

So far, I don’t think Joe Hockey has been much chop as Shadow Treasurer. He has come up with the odd good line, but I don’t think his political manner (for want of a better term) really suits the portfolio he has been thrust into. On the other side of the fence sits Wayne Swan, a man with probably less confidence or exuberance than anybody who has been Treasurer for well over a decade. Despite this, he has one key strength: the capacity to bore. Swan is a technocrat through and through, and when he hasn’t been putting his foot in it, he has been ideal for the government from a noise minimisation perspective. Hockey’s gregarious nature and his often jocular approach to managing his portfolio does not match up well against Swan’s colourless demeanour. The Opposition need sharp and incisive, not rambunctious. It needs a Nick Minchin-type on the attack.

With this year’s Federal Budget still a month away, the sniping has already begun. Joe Hockey has come out in the media asserting that the Opposition will block the Budget if it feels that there it contains “waste” or “mismanagement”. On recent form, one would have to think that the Opposition will view at least some of the Rudd Government’s further stimulus measures in this way. It’s a pretty gung-ho approach to take when one considers the Prime Minister’s extraordinary approval ratings and the general mood of the electorate, which is predisposed to supporting the government in times of crisis. While thus far this year I have felt that the Rudd Government would serve a full three years before calling an election, despite the emergence of several double dissolution triggers, if the Opposition blocks some key planks of the Budget, I think calling an early election would be justified and even, arguably, desirable.

Federal Labor, meet rock and hard place

Recent developments in Victoria and the ongoing economic turmoil being experienced worldwide have placed Labor in a difficult position with respect to its pre-election policy program. On the one hand, the Prime Minister, Treasurer Wayne Swan and Finance Minister Lindsay Tanner have felt compelled to act and act in a significant way by pushing Australia into public debt for the first time in some years with their $42 billion stimulus package. On the other hand, the Rudd Government was swept to office in November 2007 with one of the more ambitious (and expensive) programs of policy reform pushed out into the electorate in recent elections. Whether we are talking about Federal Labor’s so-called “education revolution”, the proposed national broadband network, or the government’s mooted overhaul of federal-state relations in health policy, we are talking about reforms that if correctly implemented, should result in a noticeable improvement in the affairs of the nation.

Considering the profound impact of recent developments, we might well ask whether the Rudd Government, its budget outlook now bleak, is seriously still in a position to deliver on all (or… any?) of its really big promises? The government’s emissions trading plan has, of last week, been sent off to another review by the government’s Economics Committee. The national broadband network, dogged by delays and controversies over wrangling with Telstra, could perhaps best be described as resident in limbo. Today the interim report of the National Health and Hospitals Reform Commission threw up a rather radical proposal for a new public dental scheme, funded by a substantive increase to the Medicare levy. Proposals like this might have got a guernsey by a bold government in a period of strong economic growth, but realistically what chance do they have of getting up when the government’s budget is so under the pump and the future uncertain?

It would seem almost certain that the Rudd Government is going to be heading into the 2010 election with a handful of its most visible 2007 election policies in rather troubled train or else abandoned altogether. While Federal Labor can hardly be blamed for the financial crisis furrowing the brows of leaders all over the planet, if they do not deliver on their promises in the lead-up to the next poll (or else have a bloody cogent explanation!), one could hardly blame some voters for calling them out and giving the Coalition their vote.

Well I’ll see your stimulus, and I’ll halve it!

Like the Opposition, I actually do believe that the Rudd Government’s blockbuster $42 billion stimulus package should be subjected to a reasonable degree of scrutiny. I don’t buy the government’s line that this stimulus package is so incredibly urgent that the Senate should not be permitted to conduct an inquiry, bargain or make contrary recommendations. On the other hand, given the economic climate, I do believe the Senate should be seeking to maximise both robustness and swiftness of deliberation when tackling the package – mutually opposing principles perhaps, but then we live in rather difficult times.

This is where I part company with Opposition Leader Malcolm Turnbull. I honestly believe that Turnbull’s rhetoric on the stimulus package is out of whack with the majority of his economic policy peers globally, and the general mood out there in the electorate. In most other scenarios, I would agree that tax cuts are a vastly more sensible means of passing excess government funds back to the electorate than one-off handouts. The scenario that the Rudd Government and the rest of the world faces today, however, is somewhat unique. The economy needs additional activity to be fostered now, not incrementally over the coming years. The results are in for Federal Labor’s December 2008 stimulus package, and they seem positive. The Coalition has painted itself into a corner now, with a series of ugly budget blowouts in the coming years the only possible saving grace for their position.

This leads us neatly to the other quirk in Turnbull’s rhetoric. By proposing that the government’s stimulus package be halved, Turnbull is gambling that the fear of the economy tanking as a result of government inaction is less than a fear that the deficit in the budget is going to get out of control and plague federal governments in the years to come. Some folks in the media and Liberal operatives are already trying to frame the current situation as the “deficit we had to have”. This is strangely enough true, although perhaps not in the way that some are trying to frame it. The abrupt reduction in projected tax receipts for the Federal Government as a result of the global financial crisis could not have been predicted in May last year, and even if the Coalition won at the polls in late 2007, it would find itself in the midst of a budget deficit today. This is a deficit that is not of Federal Labor’s making. It may be somewhat extended by their actions, but given their actions are quite closely tied with the prescriptions of the world’s economic orthodoxy, the Rudd Government has some defences in reserve if it needs them.

Politically speaking, this was not the right time for Turnbull to skimp. Unless the Opposition punches some serious holes in the Rudd Government’s package over the next week or so, it is not going to gain any political capital from this odd little diversion into one-downsmanship. I also don’t believe for a moment that the Coalition caucus unanimously backs Turnbull’s stance. They seem to just be biding their time and hoping that Turnbull is going to somehow get lucky by pursuing this approach.

Rudd’s reaffirmation of the Third Way?

There’s been quite a bit of buzz in the media over the weekend about a 7700 word essay on the challenges posed by the global financial crisis that the Prime Minister has produced for the next edition of The Monthly magazine. Apart from being quite a uniquely direct intellectual contribution to debate by the sitting leader of a nation, the essay looks set to revive hostilities along traditional ideological lines. In seeking to frame the global financial crisis as a signal that the neoliberal economic doctrine popular in recent years is fundamentally flawed, the Prime Minister is opening the door for Federal Labor to make a return to its social democratic roots. One could almost believe that Tony Blair’s nerdy antipodean brother is alive and well and living at Kirribilli House.

Those lovers of ideology over at The Australian have already produced not one but three opinion-based pieces on Rudd’s essay, together with a video analysis from Dennis Shanahan. Both Paul Kelly and Lenore Taylor see the essay as an opportunity for a new era of distinction between Australia’s major parties to begin, with Rudd’s Federal Labor visibly leaning a little towards socialism, and Turnbull’s Opposition staunchly defending the free market liberal agenda. There is more than a hint of the suggestion in both pieces of an unspoken truth; these guys really want Turnbull back in the game, and Rudd’s Labor tarred with the old-school, old Labor brush. Of course, they don’t really give away whether or not they have actually seen the complete essay.

As someone with a fairly inherent social democratic bent, I don’t really see a problem if the Prime Minister makes an attempt in the essay to use the fallout of the global financial crisis to push for a more balanced economic agenda. In an time when the leader of the free world is engaging in large-scale nationalisation programs and propping up insolvent giants, surely only the most deluded observer could believe that something was not a bit rotten in the state of the global economy’s regulatory regimes. At least for me, the need for greater balance in the nation’s economic affairs has been apparent for some time; it’s just plain common sense given the problems we know the world is facing today – an absurd patchwork of rich and poor, and a subliminal devaluation of the common good. To a large extent, Rudd may be seen as getting on the bus far too late, if he really does believe that it is only the global financial crisis that has engendered a need for significant systemic change. I will however reserve judgement on the essay until it is published in full.

The magazine will be available in newsagents this Wednesday. You can read the first 1500 words of the essay online here.

ELSEWHERE: Mark has more at Larvatus Prodeo, as does Jason Soon at Catallaxy.