Three tests the 2015 federal budget must pass

Australian Treasurer Joe Hockey must ensure this year’s budget escapes the echo chamber. Lukas Coch/AAP

If poor policy were to gather all its devils together, they would fit – with plenty of room to spare - between the pages of federal budget released last May.

Broken promises and quarter-truths, ill-thought through spending cuts targeting the less well-off, a cosmic-sized disconnect from public sentiment, consumer confidence undermined. With such a hellish list, it’s little surprise the political and policy debate of the last 12 months has been dominated by the budget’s sorry legacy.

In a new post-mining boom world, Australia has much to do in terms of updating its economic and fiscal settings. It must also set out new policy foundations to grapple with systemic problems such as an ageing population and rising inequality.

The government, however, effectively must start again on many of the reforms it originally proposed as crash-through change in the 2014 budget. All this has led many pro-reformists to view the past 12 months as a wasted year. But in time it could be seen as a watershed year.

How so?

The answer lies with the three key lessons from the 2014 budget.

The budget’s diabolical aftertaste has meant no future government will want to toss in any of these ingredients and risk cooking up a similar toxic brew. And that can only be a positive thing.

Get out of the echo chamber

The 2014 Budget may one day be known as the “echo chamber” budget.

It was largely forged between senior government ministers and the corporate sector who, having convinced themselves there was a budget “emergency”, believed only a machismo, crash-through response would do.

The thing about echo chambers is that it is easy to convince yourself you are doing the right thing, even when to everyone else it is clearly not. Even the government now tacitly admits the “emergency” was overblown.

And it understands how badly next-to-no consultation with doctors, welfare groups, state premiers, universities - and just about anyone else impacted directly by the budget’s measures - backfired.

So belatedly, it now realises that the virtue of consultation is not just about good political optics, but better policy. Thanks to the tin-eared nature of the 2014 budget, future reform will have extensive consultation hard-wired into it.

We are now seeing that with the tax reform debate.

Of course, consultation always carries the risk of more style than substance, or being narrow-banded to the usual interest groups. But ultimately, the 2014 budget represented a potential tipping point in forcing governments - now and in the future – to think and act much more carefully about enlisting a much wider range of ideas and viewpoints before embarking on reform.

The alternative, as the government has learnt, is a “just-say-no” response from the public now extremely attuned to the failings of “echo chamber” policy.

Make fairness the new ‘black’

Thanks also to the 2014 budget, which sought to make a virtue of disproportionately hitting the less well-off, future reform is now more likely to have fairness and equity as important goals.

Like consultation, fairness is not only about good optics. Making fairness and equity key goals, rather than afterthoughts, is good public and economic policy. Ignoring them risks bad policy outcomes replete with unintended consequences.

The government sought with last year’s budget to stimulate business and consumer confidence with a fiscal “recovery” program that was meant to signal Australia’s economy was now under “adult” management.

The result of targeting the poor for spending and social service cuts was not only a fierce electoral backlash. It also contributed to worsening the budget bottom line. This was due in a major way to an aggrieved Senate refusing to pass any of what an aggrieved public viewed as the government’s “unfair” changes.

Even worse, the budget contributed to a slow-down in the economy as consumers – particularly the poor who spend most if not all their income on consuming – fearfully closed their collective purse strings.

The government - in launching a frontal assault on fairness in the name of fiscal repair and economic growth - scored one of the worst policy own goals in living memory.

All this could have been avoided if the government had stepped outside its echo chamber prior to the budget and read a just-released report by the International Monetary Fund (IMF). They would have seen the IMF report highlight how inequality curtails economic growth. Greater equality, on the other hand, aids growth as well as helps sustain public support for reform, the report stated.

So, like consultation, fairness and equity have now emerged as the new “black” in policy and reform terms.

The government has been busily pre-selling the 2015 budget as being all about “fairness and integrity”. Labor has already flagged the next election as being a ‘referendum’ on fairness.

All this points to fairness being embedded as a key marker for electoral and policy success in future budgets, along with major economic reform in the months and years ahead.

Say no to big business

The third toxic ingredient in last year’s budget was the disproportionate influence of the big end of town. The big business-driven Commission of Audit laid the foundations of the 2014 budget.

Given the outcome, no future government will dare outsource public policy to the corporate sector in the same laissez-faire way.

The actual policy prescriptions pushed by big business and largely swallowed by the government were highly ideological and unimaginative. Collectively, they had more to do with a 1980s “trickledown” perspective of economics and society than a reform framework attuned to a post-GFC, 21st century world: one where the public is highly sceptical of winner-takes-all market “solutions” proffered by business elites.

What’s more, having talked a big game about the reform imperative, business leaders have largely stayed silent and aloof when asked by the government to take the reform case to the community, where it counts.

Lessons learnt … but for how long?

Key lessons about the need to seek out alternative policy views, tie reform to equity and curtail the excesses of corporate rent-seeking appear to have been grasped - albeit in a rudimentary way - by the government.

The 2014 budget will long live in the collective memory of Australia’s political and policy class as a “how-not-to” lesson in reform management. Heaven help a future government which unleashes the same devils that created it.

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