A broken clock is right twice a day. When it comes to accuracy and reliability, that’s infinitely better than federal Treasury revenue projections. Yet the Treasurer, Scott Morrison, has staked the Coalition’s future on Treasury predicting the government’s coffers will be awash with money that, as recently as late last year, was not even imagined.
This revenue windfall, courtesy of stronger than expected domestic economic performance and optimistic forecasts for the global economy (to the dismay of his multitude of detractors, Donald Trump is delivering economic dividends in the US and contributing to greater stability in our region), is the basis for what the Prime Minister, Malcolm Turnbull, and the Treasurer see as the Coalition’s launching pad for re-election.
The buzzword of this budget is billions. Billions of extra tax collections. Billions on tax cuts for low and middle earners. Billions on huge infrastructure projects. Cancelling a Medicare levy rise to cover the National Disability Insurance Scheme: billions. Money for inefficient states to run public hospitals: more billions. Aged care reform, more home care places and support for ageing baby boomers: yes, billions.
This spending is coming out of the revenue windfall, with only modest saving offsets. Mr Turnbull and Mr Morrison could have cut deep into wasteful and unnecessary expenditure to annoy the hell out of Labor and the Greens, whilst pleasing Liberal party members and grassroots supporters. But with some honourable exceptions – the Treasurer’s using cuts to the ABC’s funding for his $50 million pet project, the new Captain Cook discovery centre in his own electorate, is particularly delicious – they didn’t.
Australia is still party to the jobs-destroying Paris Accord. The power bill vandalism that are Renewable Energy Targets is still there. The National Broadband Network is a money pit and Christopher Pyne’s French submarines an extravagant folly. Mr Morrison’s plan to cap government’s tax addiction at 23.9 per cent of GDP nevertheless is welcome. But without a complementary but lower cap on government spending, we will never make a serious dent in our nearly $350 billion net government debt. As Peter Costello warned this week, as things stand we may all be dead before the that debt is paid off fully on the back of many years of budget surpluses, assuming fiscal restraint neither side of politics shows.
Mr Morrison dismissed his illustrious predecessor Mr Costello as unduly pessimistic. But a budget founded on an unexpected cash windfall carries risks. Facing a difficult election, the Prime Minister and Treasurer are like someone who’s had an unexpected legacy from a long-lost relative. Awash with money they never expected, they have chosen to splash out on the budget equivalent of doing long-wanted renovations to the family home, with a first-class round-the-world ticket thrown in.
Tax cuts are welcome, as is necessary infrastructure investment, but these depend on a windfall that may well, like so many of Treasury’s revenue projections, prove a tad too optimistic. Should we be saving more for a rainy day in case domestic economic growth, jobs and profits don’t hold up, or international conditions deteriorate unexpectedly as they did in 2008’s Global Financial Crisis?
As this magazine has said before, the greatest asset the Coalition has over Labor is it is the party of superior economic management. As we saw in 2013, voters elect it to clean up Labor’s fiscal messes and govern responsibly. They respect prudence, and are willing to back governments offering it, as John Howard and Mr Costello well understood.
While an earlier return to surplus is welcome, the Coalition’s political and electoral narrative would have been well-served had Mr Morrison produced a Budget night surprise return to surplus this year rather than next. In an instant, the Coalition would have defined itself against a tax-and-spend, bigger government Labor. Instead, we’re looking at a ‘my spending is bigger than yours’ election campaign, with both the Coalition and Labor going all out to splash the cash.
But voters aren’t fools: they know spending well doesn’t necessarily mean spending bigger.
On budget night Mr Morrison said the right things about easing Australians’ cost of living pressures and governments living within their means. He believes his budget ticks those boxes and, if its rosy assumptions hold, it can deliver what he promises.
Yet in putting so much trust in overly rosy Treasury forecasts, the Treasurer takes a huge political gamble. If he’s right, the Coalition can win re-election on this budget. But if he’s wrong, a decade of Labor governments will blame him for everything.