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Grattan on Friday: Joe Hockey and Tony Abbott is a partnership facing plenty of tests

Joe Hockey and Tony Abbott have some significant challenges in the near future. AAP/Daniel Munoz

A column by Paul Kelly in The Australian this week caused a ripple around the government. It said, in essence, that Education Minister Chris Pyne had been told, after a discussion in the expenditure review committee, to go out and try to find savings from the Gonski funds.

The detail is less important than that the article referred to what had happened in the “razor gang”. It was an early sign of what inevitably come in any government – leaks.

There are other realities that the Abbott government’s ministers are getting used to. Like the fact that there are more ways than one in which a parliament can be “hung”. And how promises turn into corsets. To say nothing of discovering that those predictions about the parlous budget turn out to be truer than imagined.

Liberals like to hark back to John Howard’s days but there is a tendency to romanticise his time (the same rosy glow applies when people talk about the ‘80s – the reform process was bumpier than it seems in retrospect).

Howard had a very scratchy first year. Tony Abbott is having some messy early days (although he hasn’t lost any frontbenchers, as Howard did). The new PM will hope things settle over the summer break into a better rhythm, before the tough decisions are faced.

The double back flip over Gonski has taken bark off Abbott and left Pyne looking worse than bad (some would see the Kelly column as a strategic attempt to justify his position).

But it was better for the government to cut its losses and keep its election promise than to try to brazen out an ill-considered effort to slash the money.

The government can’t afford to squander political capital at this stage. It needs to hoard it for the big things. And among the biggest over the next few months will be the budget.

Treasurer Joe Hockey will release the budget update before Christmas (it’s expected the week after next). Revenue will be bad, and so will the spending side. The Coalition will make these first figures as bleak as possible, and then bundle them up with a “Labor’s fault” ribbon. In terms of responsibility, Hockey is seeking to make the May budget itself the real start of his fiscal administration.

The government says the opposition is frustrating $17 billion in savings over the forward estimates ($18 billion when it adds in public debt interest). The largest item is $13 billion associated with the non-repeal of the mining tax, but the list also has measures Labor announced but is now reneging on. These include the higher education savings ($2.3 billion) and a 2015-16 round of personal income tax cuts - part of the carbon package - that the ALP deferred indefinitely ($1.5 billion).

There appears no prospect of immediate progress on getting these cuts. So far the only measure that the government has been able to get through the Senate is the lifting of the debt ceiling, in a compromise reached with the Greens.

The bulk of these savings can be expected to pass the new Senate - in particular those accompanying the abolition of the mining and carbon taxes, although the tertiary education cuts could be more problematic. But there is a cost in delay.

The prospect of a budget full of nasties designed to bring in long term changes highlights the point than even when it gets a more favourable Senate the government will require serious negotiating skills to round up the numbers. It won’t just be able to talk about its “mandate” and adopt a we’re-here-to-rule attitude. And the time will have passed to credibly blame Labor. It will need to deliver despite Labor.

Many measures could be electorally difficult. If big business is ever to get its hands on a budget, May will be the time. The Commission of Audit is headed by the Business Council of Australia’s president Tony Shepherd. The membership of the government’s Business Advisory Council, announced this week, is very “top end of town”.

His first budget will be a defining moment for Treasurer Joe Hockey and also a test of the Hockey-Abbott relationship.

In his early days as Treasurer Hockey has been among the government’s best public performers. But it has also been a difficult time for him: his rejection of the GrainCorp takeover has put him at odds with his own “dry” views and invited criticism that he gave in to the Nats, or Abbott, or both. Criticism from former treasurer Peter Costello rankled.

Hockey’s muscle will be tested as the government responds to pressure from the car industry for more assistance, and to the parlous situation of Qantas.

He laid down his general principle yesterday. “The bottom line is that governments should not be in the business of propping up private sector operations.” But the political sensitivities of both the auto industry and Qantas mean that it is hard for governments to be anything like pure in these situations.

The issue with Qantas, Hockey said, “is that it has restrictions on its ownership that are imposed by the Parliament. And if the Parliament wants to continue with those restrictions then taxpayers have to be prepared to foot the bill. That is not going to be a cheap process.”

But getting rid of that restriction – that is, allowing majority foreign ownership in Qantas – would not be cheap politically. It’s looming as a classic dilemma between the economics and the politics.

The question as the government prepares the budget in coming months will be: how much reform can Hockey pile into it? As he knows, the first year is the big opportunity.

But this partly depends on the subsidiary question: how far will Abbott be willing to go?

The PM sent out two signals in a speech to the BCA on Wednesday. “This government is determined to be a reforming one, in the tradition of the Hawke and Howard governments,” he said. But “in a stable, peaceful, pluralist democracy few things change dramatically overnight, nor should they.”

The relationship between PM and treasurer comes to say much about what a government does and the legacy it leaves. The Hawke-Keating and Howard-Costello pairings were both competitive partnerships, sometimes delivering a lot, at other times seeing the treasurer deeply frustrated at the restraining hand of his boss, and complicated by the batons in the treasurers’ knapsacks. Both Hockey and Abbott will be very mindful of all that history, as they write their own story.

Listen to Shadow Treasurer Chris Bowen on the Politics with Michelle Grattan podcast, available below, by rss and on iTunes.

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