The government has done its best to make a bad economic situation as politically salvageable as possible.
It had to bring down today’s statement, because the worsening numbers would have come out early in the election campaign under the Charter of Budget Honesty. The outlook is bleak: lower growth than expected at budget time, higher unemployment, written-down revenue, deeper surpluses.
All very difficult so soon before an election that people expect to be called this weekend.
The government has tried to make a virtue of adversity, using the narrative of the economy’s transition from the mining boom. It has crafted its savings to hit the later rather than earlier years of the four-year budget period, saying the challenges of the transition mean big cuts early on would harm growth and jobs.
The ring-fencing of the immediate years has political advantages – although some of the pain from the savings comes simply from their announcement.
The result is larger deficits (compared with May) this financial year and next and the abandonment of the earlier-projected balanced budget in 2015-16. The plan for a surplus (albeit smaller) in 2016-17 is still there, although the government has learned not to use the absolutist language of a few years ago.
But let’s face it – talking about 2016-17, or even a lot closer, is unreal. If revenue can be written down by $33 billion between May and August, it is ridiculous to bring any precision to the longer term. If the last few years have shown anything, it is the volatile times in which we live.
The specific savings, the politically toughest of which were pre-announced (the new FBT arrangements for cars, the higher tobacco tax, the bank levy) are already causing some backlash. The government has looked for soft targets – the aid budget and the public service – but the amounts needed meant there were not enough of those around.
The economic statement is as much about spending as savings. Kevin Rudd hasn’t been back long but he’s become a big spender. Bringing forward the emissions saving scheme costs $3.8 billion. The Papua New Guinea asylum plan has a price tag of more than $1 billion. When savings in onshore detention are taken into account, it comes down to about $600 million. But then there is some $420 million in aid to persuade PNG to come to the deal.
All this meant the big spender had to be a bigger saver than he would have wished. Moreover his big spending has been on coping with problems, rather than on election “bait”. There is some more to come – a package to help the car industry, which has been squealing about the FBT decision.
The government is selling itself as open and honest about its figures and strategy; it challenges the opposition to reveal its numbers, while conjuring up fears of what Tony Abbott’s proposed commission of audit would do after the election.
The Charter of Budget Honesty has changed forever the nature of the economic debate at election time. The parties have to deal with where the economy is at. They can’t pretend about the economic numbers, as happened in 1983 and 1996 when incoming governments found big fiscal holes (which they suspected were there but nobody admitted to).
The issues of debt and deficit are confronting for Labor. What Kevin Rudd (not seen today – he left the bad news to his treasurer and finance minister) has to do is convince people he will protect them in uncertain times, just like he did during the GFC, and that Abbott would not do that.
With the focus on the government, Abbott took the opportunity today to make a dramatic change of policy.
After declaring that a Coalition government would not accept Labor’s schools funding plan, at least unless it had “overwhelming” support from state and territory governments, Abbott has now totally capitulated, saying a Coalition would match dollar for dollar what Labor would give.
This means providing the funds to those states, Western Australia, Queensland and Victoria which have not signed up (the government is still negotiating with Victoria). The payment would also include the extra money Julia Gillard held out to try to get WA into the plan.
The Coalition has seriously botched its handing of the schools issue. At first. the word behind the scenes was that it would not fight the plan, because it didn’t want to have schools as a major election battleground.
But Abbott hardened the stance, and found himself at odds with the NSW Liberal premier Barry O'Farrell, who at quickly did a deal to join the plan.
At times Abbott and his education spokesman Christopher Pyne (who had always wanted the issue defused) had different lines. Recently Abbott adopted a compromise position – the Coalition would honour for 2014 deals done, while renegotiating the plan. But with the Catholic and independent school sectors behind the new arrangements, that still left the issue an irritant.
The decision to give in completely on Gonski indicates that Abbott wants to make himself a smaller target in policy areas where he is vulnerable.
Still, after all Abbott’s criticism of the plan (including its unaffordability), it was bizarre to hear him saying, “Kevin Rudd and I are on a unity ticket. There is no difference between Kevin Rudd and myself when it comes to school funding”.
Abbott’s pragmatism on Gonski throws up an interesting question. If he won the election with just a modest majority, and then could not get his promise to repeal the carbon tax through the Senate, would he go ahead with his undertaking to have a double dissolution on the issue? If a subsequent election looked a risky proposition, would he decide, or be forced by his colleagues, to do on carbon what he’s done on Gonski?