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No pressure Joe, but you are back in the spotlight

The Intergenerational Report is to frame the story for Treasurer Joe Hockey’s second budget. AAP/Mick Tsikas

The government wants the public to take several political messages out of the Intergenerational Report (IGR) Joe Hockey is releasing on Thursday.

Stated crudely, these are: first, that Labor’s policy settings would have taken us to hell in a hand basket; second, that but for the pesky Senate, the budget would have been in good shape relatively soon; and third, that despite the obstacles, the government is making progress towards bringing us to fiscal health.

The report is set to frame the story for Hockey’s second budget. In contrast to the first one’s crash through approach to what the Coalition had talked up as a massive crisis, the coming budget is being cast in terms of steady repair.

The new approach is driven by difficult politics and a weak economy.

Tony Abbott has had a reprieve but his longer term future remains in doubt. Trying to consolidate his leadership isn’t coming cheap. By Wednesday he’d cost the budget more than A$1 billion in two policy backdowns in as many days – tossing out the Medicate co-payment ($900 million lost in savings) and increasing pay for the defence forces ($200 million). Offsets will need to be found.

On the economic front, Wednesday’s September quarter GDP figures showed Australia’s annual growth going in the wrong direction – now just 2.5%, down from 2.7% in the previous quarter.

This fourth IGR is, like the one then-treasurer Wayne Swan issued in 2010, a document that’s much more heavily laced with politics than the first or second were. The opposition is already attacking it on this ground.

Shadow treasurer Chris Bowen says it will be a “politicised” document designed to salvage the government’s “failed unfair budget”. “The Treasurer has recently claimed that the IGR was ‘independent analysis’ but the Treasury confirmed during Senate estimates last week that all key elements of the IGR are matters for the Treasurer,” Bowen says.

The report outlines three scenarios about the deficit.

Under Labor policy, by 2054-55 the deficit would have reached nearly 12% of GDP, and the ratio of payments to GDP would have been on track to reach 37%.

Under what’s been already legislated by this government, the deficit would almost halve to 6% of GDP by 2054-55.

The policy scenario the government had originally proposed had the deficit moving to a sustained surplus from 2019-20.

The initiative for IGRs (part of Peter Costello’s charter of budget honesty) was a good one and the general exercise is valuable. Long-term demographic trends, most notably the impact of the ageing of the population, are highlighted.

The reports highlight the growth trends in big spending areas. Policymakers are reminded, when they have potentially costly ideas, that they should think beyond the immediate budget cycle.

The IGR can also, legitimately, be used by politicians and others to argue the case for structural reforms.

This report documents the expected decline in the proportion of the population participating in the workforce over the next four decades as the community ages. By 2054-55 the participation rate for those aged above 15 – 64.6% in 2014-15 – is projected to decline to 62.4%.

The IGR reinforces the argument that more participation is needed by older people and women, buttressing the case for better child care (the government will announce a child care package soon), more flexible working arrangements and the removal of discrimination.

On current trends, the proportion of women aged 15-64 who are employed will increase from 66% today to just 70% by 2054-55. The report says that policies removing barriers to women’s participation and encouraging them to work can can drive gains in GDP and income.

It also points to the need to ensure spending is sustainable.

This was a message new Treasury secretary John Fraser hammered last week, arguing that “weakness in revenue is only partly to blame for the current state of government finances.

“The reality is that Australia has spent its way to a structural budget problem. Government payments are growing faster than government revenues and without action, this trend will continue,” Fraser said.

But the debate about this IGR will inevitably make the numbers sound more authoritative than they can possibly be.

The projections are based on assumptions, varying from the long term growth rate to the migration intake. There are alterations in assumptions from report to report, and even making small changes can produce very different figures.

Common sense tells us that to talk about the deficit in 2055 requires a crystal ball as much as an economic model. If there had been an intergenerational report in 1975, how accurate do we think its projections for 2015 would have been been?

Abbott noted that on the projection of the government’s 2014 reforms “the budget would have fairly quickly returned to substantial surplus and stayed there for 35 years”. But it should be emphasised this is only on the model – no-one can know what would happen in real life over all those years.

To add a cheap shot, we might also observe that Treasury has problems getting its forecasts and projections right from budget to budget.

The IGR and the subsequent debate will be very important for Hockey’s own credibility. Hockey has been under as much criticism as Abbott. This week we’ve seen Abbott lift his game considerably. The policy adjustments have been accompanied by a less aggressive, improved performance in question time and, on Wednesday, even a promise to sit down with Bill Shorten to discuss the issue of domestic violence.

We’ve yet to see much improvement in Hockey. He’s tended to be out of the spotlight recently; suddenly he’ll be back in it. He can’t afford any missteps.

Hockey has to strike the right balance in presenting the IGR – he has so far cast it as both scary and exciting. Then in a couple of months comes the bigger hurdle of the budget – a test on which both his and Abbott’s future could swing.

No pressure, Joe.

Listen to the newest Politics with Michelle Grattan podcast, with guest, Shadow Communications spokesman Jason Clare, here.

Medicare co-payment: a case study in policy implosion

The trouble is that when Prime Minister Tony Abbott periodically seeks absolution he doesn’t necessarily improve. AAP/Lukas Coch

Tony Abbott was in full confessional mode after Tuesday’s formal interment of the Medicare co-payment.

As a former health minister, “I should have known better than to attempt health reform without the strong co-operation and support of the medical profession”, Abbott told parliament.

“I accept chastisement,” Abbott said. “But it is much better to learn than to be obstinate.”

Indeed. That should have applied to a lot of what the prime minister has done since the election. But the trouble is that when he periodically seeks absolution he doesn’t necessarily improve. Does he really grasp the need for good process?

The Medicare co-payment has been a spectacular case study in bad policymaking, marked for a long time by breathtaking arrogance and hubris on the government’s part.

And while the co-payment might be, as Abbott said, using his own recycled phrase, “dead, buried and cremated”, the government’s policy on Medicare is still a work in progress, with negotiations ongoing with the Australian Medical Association and the government preparing for a fresh search for savings through a forensic review of the Medicare schedule.

The co-payment, announced in the budget, was driven by a combination of ideology and budget needs. The government was convinced that people capriciously overused doctors' services.

Abbott and his office, including chief of staff Peta Credlin, had a major hand in the design, including the level, of the co-payment. Credlin did not think A$7 was unreasonable. The Medicare package, which also included a freeze on the indexation of rebates, was to save $3.5 billion over the budget years.

A modest, properly targeted co-payment would have been a reasonable idea. A $7 charge (potentially adding up to a substantial amount for a patient needing multiple tests) without exemptions for the needy, ignored political realities such as a hostile Senate, an inevitable public backlash, and the power of the medical profession to mobilise opposition.

But the government dug in for months, until its December rethink, which reduced the co-payment to $5, restructured the rebate for short GP consultations, and extended the rebate freeze until 2018.

Only weeks later, with all hell breaking loose ahead of the Queensland election, Abbott summoned his new health minister Sussan Ley from her holiday. The change for short visits was aborted, and Ley embarked on intensive consultations with the doctors.

That’s the brief history. Well before its December-January changes, the government asked the Australian Medical Association (AMA) to prepare an alternative plan, then snorted in derision at what it produced. Later on, the Prime Minister’s Office had a PR disaster when it tried to brief out proposed alterations.

Abbott absolutely should have known better all the way through. His first big dealings as health minister with the AMA were with its then-president Bill Glasson (who ran in 2013 for the Liberals against Kevin Rudd in Griffith, and contested the subsequent by-election). Glasson extracted a good deal on medical indemnity.

The government was a touch unlucky that at the start of the the co-payment row, the AMA – often seen as one of the most powerful trade unions in the country – got a new president.

Brian Owler, whose day job involves using the scalpel on patients' heads, takes up blunter instruments when dealing with politicians. In the medical trade, they claim decisiveness is a surgeon’s trait. He is a capable and indefatigable media performer, had something to prove to his members and was more than a match for a government on the ropes.

As Owler said on Tuesday, the co-payment “has been dead for some time” – it was only a matter of pronouncing its passing.

Abbott did not attend the burial. He was more comfortable flanked by eight flags and the chief of the Australian Defence Force, Air Chief Marshal Mark Binskin and Defence Minister Kevin Andrews, announcing more Australian troops for Iraq. Ley’s news conference followed immediately. She was alone.

Dropping the co-payment plan has lost another $900 million from the budget.

All that’s left now the government has abandoned the $5 cut in the Medicare rebate and the $5 co-payment is the freeze on the indexation of the rebate, which is worth $1.3 billion if it runs through to 2018. But its length is up for grabs in further negotiations about ways to make savings that Ley will have.

Owler – who meets Abbott on Thursday – was already warning on Tuesday that a freeze until 2018 would mean increased costs for patients.

Ley has an uphill battle in keeping up with the doctors. Not only is she new to the area, but so is her departmental head Martin Bowles, who has recently arrived from Immigration.

Ley struggled on Tuesday with trying to hang on to the idea that a price signal was needed while she was abandoning the specific signal represented by the co-payment.

“It’s definitely good policy to put the right price and value signals in health to make sure that, number one, people value the service they get from doctors … and also that they make that modest contribution according to their capacity to pay, and those who can pay a bit more are asked to pay a bit more. It’s really that simple,” Ley told her news conference.

It’s not really that simple however, as was obvious when on Sky Abbott’s dead-and-buried line was stacked up against her declaration that the policy intent remained a good one. “So which is it?” Ley was asked.

“Well, it is both because what we want to make sure is that to keep Medicare sustainable, we find ways for those who can contribute more to the cost of seeing a doctor to pay a modest contribution. And at the moment, bulk billing rates are too high, too many people who can afford to make that modest contribution are in fact paying nothing.”

How a price signal is sent to the patient while the co-payment remains in ashes is a mystery, and how much the government can get in its new hunt for savings is a question mark.

So at the end of it all, the government is left with no price signal, and until it finds further efficiencies, no Medicare savings policy at all except the rebate freeze that the AMA is determined to chip away at. Not a bad effort at policy implosion.

Living by the polls will be Abbott’s fate from now on

Prime Minister Tony Abbott’s fortunes from now on will swing from poll to poll. AAP/Lukas Coch

The cameras were in the cabinet room on Monday, apparently so the TV stations could get footage of the new line-up after last year’s reshuffle. But Tony Abbott also wanted to get a message out – one he’s trying to turn into a prop for his leadership.

The message is – as Kevin Rudd might say – that Abbott and the team have their sleeves rolled up.

The government was “working hard for the people of Australia”, who wanted “people in Canberra” to be “worried about them” rather than worried about themselves (“ourselves”, Abbott means).

Abbott reeled off the last week’s work, relating to national security, welfare reform, child care, food labelling, foreign investment. Much of this, of course, involved first steps, but the important thing was the list.

Then, for this week, Abbott pointed to metadata retention legislation coming before parliament and the release of the 2015 Intergenerational Report.

Abbott might have added the commitment of more troops to Iraq, about to be announced after going to Tuesday’s party meeting, and the lancing (after earlier failed attempts) of the Medicare co-payment boil.

The revised Medicare plan prepared for cabinet by new Health Minister Sussan Ley was understood to drop the A$5 cut in the Medicare patient rebate, reduce the length of the freeze on the rebate (having it end July next year rather than in 2018) and scrap the $5 co-payment. In place of the co-payment, the government was looking at the Medicare schedule to see where it could send a price signal.

With the Fairfax-Ipsos poll giving him a buffer for the moment and the leadership moves against him at an impasse, Abbott is stepping up the approach he’s adopted after his “near-death experience” of the February spill motion that was defeated by only a modest margin.

This involves a cascade of announcements to send positive messages to the public and considerable internal consultation with MPs to convince backbenchers that Abbott should be given adequate time to repair.

The strategy also includes dashes around the country when Abbott’s not in Canberra for parliament. It’s about being seen to do a lot, listen a lot. His hope is this will push up the polls and keep the backbench in the tent.

The result is to reinforce the image of modern politics as a permanent election campaign, with announcements and re-announcements piling on top of each other, and trash being dumped.

Last week the line from those wanting a leadership change was that the backbench felt the task was now up to the ministers. But they aren’t taking it up at the moment.

Trade Minister Andrew Robb on Monday declared the dissidents should “pull their heads in” and, in the absence of much alternative, that’s what they are doing for now. “We are at the mercy of events,” said one.

That’s true for all the players – Abbott and those with aspirations. Abbott’s fortunes from now on will swing from poll to poll. While the latest Fairfax poll is helping him, future bad polls will have the opposite effect, throwing him off balance. It’s no way for a prime minister to have to live, as Julia Gillard can tell him.

A big question is what impact this poll-to-poll, event-to-event existence will have on the formulation of the May budget. Last year the crazy brave budget message seemed to be “to hell with the polls”. This year the polls will be well to the fore in Abbott’s thinking during budget discussions.

And there is a contradiction here. Thursday’s Intergenerational Report is all about the long term, which should mean making hard choices. But there is no way that Abbott – as he indicated some time ago – will allow too many tough decisions. Notably, he said on Monday that while the IGR “shows the scale of the budget problem, it also shows the extent of the progress we’ve already made”.

Assuming he is still leader by then, Abbott needs a budget that does not push down the polls or upset the Senate too much.

Which brings us to Clive Palmer. Just to rattle the government’s cage, Palmer announced on Monday that the two Palmer United Party senators would not vote on any legislation until the government “chaos” ended.

“The government’s proposals seem to change daily. The policies are not consistent, party in-fighting and conflict is ongoing and as a result our party has decided as a bloc in the Senate to abstain from voting on any legislation proposals.”

Palmer, just to stir a bit more, also pointed to the Liberals' internal argument over financial transparency and accountability, which will be before Friday’s federal executive meeting.

“For the Palmer United Party to vote on any proposals, the chaos needs to be resolved or we will abstain until the next election,” Palmer said.

Just what throwing this small grenade will mean for the government’s program is unclear. Especially as, after Palmer’s mid-morning statement, his senators in the afternoon voted to oppose the legislation dealing with union governance.