The Reserve Bank giveth, the government taketh away. At least, that’s the latest pre-budget story.
Many families with mortgages of $300,000 will save around $560 a year from the Bank’s 25 basis points cut. But they will not get the July 1 boost in the family tax benefit that was promised, with much fanfare, just a year ago. For a family getting the maximum rate of FTB Part A, with two or more children, this was to be an extra $600 annually.
The Reserve surprised many economists with the rate cut – there had been speculation it would follow rather than precede Tuesday’s budget.
But the Bank noted that growth was “a bit below trend” recently, and the unemployment rate had moved up a little. It had previously said the low inflation outlook would give scope to ease rates “should that be necessary to support demand”; it had now decided “to use some of that scope… to encourage sustainable growth”.
The cut takes the cash rate to 2.75%, a record low. In past days, Treasurer Wayne Swan described 3% as a emergency level but totally rejects such talk today. There’s no comparison between the GFC times and the current economy, he says, which is fair enough. The trouble is, politicians’ words return to haunt.
As Swan tweeted “Great to be back at the Department of Treasury – this will be my workplace for the next week as I prepare for Budget,” the government was confirming another revenue write down for this financial year – and, in its wake, another broken promise.
The total 2012-13 write down is now $17 billion. Last week, when talking about the $12 billion write down since October (up from the previous $7.5 billion), Julia Gillard said everything was on the table, including things formerly off the table, and very quickly the rise in the Medicare levy was announced, to help finance the national disability insurance scheme.
The now aborted increase in the family benefit was worth $1.8 billion. When it was unveiled in the last budget it was badged as “spreading the benefits of the boom”; it was part of a $3.6 billion package “to deliver much needed financial relief to families and businesses under pressure in our patchwork economy”. The TV stations are having a great time with the footage from a year ago; seeing the Gillard-Swan hype replayed will fuel voter cynicism.
The money had already had a chequered history – it was to come from the mining tax (which proved a nearly dry well) and had originally been intended to finance a company tax cut, which became politically impossible to get through parliament.
The story of the mining tax itself just gets worse. Estimates prepared by the Parliamentary Budget Office, using March data, suggest the tax will raise only $800 million this financial year compared with the projection of $2 billion in the October budget update.
Finance Minister Penny Wong dwelt on the fact that in the family tax benefits reverse people would not be losing out on what they are getting now.
Just what they had been told they could bank on. But as it heads to a multi-billion deficit the government’s fears about the bottom line have prevailed over worry about broken promises.
Labor is now being held to account for last year’s budget – the undertakings that it hasn’t been able to meet, including a surplus and now the family tax benefit rise, and the flawed estimates of revenue.
Almost certainly it won’t be in power when Tuesday’s budget is looked at retrospectively. But in the immediate term, commentators and the public will judge it with more sceptical eyes because of what’s happened with its predecessor. That much of the “spreading the benefits of the boom” largesse failed to materialise may colour judgements about Tuesday’s positives. And the flaws in the previous revenue estimates have cast a cloud over Treasury’s numbers, although those problems might lead it to be super cautious this time.
Meanwhile the opposition is conspicuously pushing out its own time frame.
Shadow treasurer Joe Hockey told the Master Builders Association: “I can promise that the Coalition will deliver a better budget bottom line than Labor. However, we cannot map out a strategy to return the budget to a sustainable position until we see the real numbers in the Pre-Election Economic and Fiscal Outlook. It is only the PEFO figures which are largely free of politicas in that they are signed off by the secretaries of Treasury and Finance rather than the Treasurer”.
Leaving aside the point scoring, it makes sense, as the story of the disappearing revenues suggests, to keep your options open as long as possible in these volatile times. But how politically convenient too. It means that on some critical issues, the opposition will not show its hand, or open itself to full scrutiny, until the formal campaign is well underway.