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View from The Hill

Worried about nervous ‘animal spirits’, government plays cool dude on the budget

Finance Minister Mathias Cormann says the government has ample time to get its measures through the Senate. AAP/Tracey Nearmy

The government’s panicky budget message seems to have panicked even the government. Now it is trying to put a new perspective on the battle with the Senate.

For weeks we were regaled with crisis talk, the spectre of a A$40 billion gaping hole posed by Senate obstruction, the impression – generated mostly by the government itself, with the enthusiastic help of crossbenchers, Labor and the media – that the budget was under an unusual degree of siege.

With Clive Palmer recalcitrant on many measures, business leaders issuing warnings about the implications for the economy, senior minister Andrew Robb muttering about sovereign risk, and commentators calling for a budget “reboot”, the doomsday scenario got out of hand.

There was concern in government ranks that too many people might be taking it seriously, thinking the core of the budget really was in serious trouble. To say nothing of the fact that ministers’ more recent lines about being willing to compromise on individual items were being drowned out.

The potentially bad consequences for business and consumer confidence were obvious.

So a new official script has been issued. The budget is not in trouble. Indeed most of it is already passed.

As for those measures dominating the headlines – Medicare co-payment, deregulation of universities, tough new arrangements for the unemployed, and others – well, they might just take a while to get though.

It happens, the script goes. No need to panic. The co-payment, for instance, doesn’t start until mid-next year. After all, Senates hold up things. The government might – but doesn’t – recall how the Coalition frustrated for years Labor’s paring back of the rebate for private health insurance, a measure involving substantial savings.

Finance Minister Mathias Cormann, speaking on Tuesday, said there had been an implied suggestion in much of the commentary that unless all the budget legislation was through both houses of parliament by now “we were somehow running late”. Not true, Cormann said – there was “ample time to keep engaging with the Senate crossbenchers”.

“No government in recent political history had passed all of its budget measures through both houses of parliament by the end of August. We are on track,” he said.

The detail underpinning this new cool script has been prepared by Treasury and Finance and is made available by the Treasurer’s office. This is what it says.

“The budget includes around $440 billion in expenses for 2014-15 and $1.9 trillion over the four years to 2017-18. Only around $20 billion in net expense measures over the forward estimates – or around 1% – of this has not yet been implemented by legislation.

"The 2014-15 budget included around 400 policy decisions (expense, revenue, and capital decisions), with a net improvement to the bottom line of nearly $40 billion in fiscal terms over the forward estimates period.

"Nearly two thirds of these policy decisions are implemented with the passage of the annual appropriation acts [in June].

"The impact of these measures that have already been implemented is a net improvement in the budget bottom line of around $15 billion over the forward estimates. This means there is around $25 billion of measures which improve the budget bottom line outstanding.

"Many big savings have already been implemented, without the need for further legislation including [the $7.6 billion cut in aid, the single biggest saving].

"However, many of the savings that remain to be legislated are structural savings that have a greater impact on the budget over the medium to long term, including the GP co-payment, welfare changes and reintroduction of fuel excise indexation.

"These measures are key contributors to reducing expected debt levels over the next decade by nearly $300 billion. These are also some of the key measures that the government is working with the new Senate to implement.”

The emphasis is on what’s through, with the hefty $25 billion “outstanding” figure cast in a fairly relaxed context.

The tone is different from when Treasurer Joe Hockey was threatening new austerity measures if the Senate didn’t play ball.

New script or not, the government still faces major problems in getting a substantial part of its medium term program through.

On Thursday the debate about the Medicare co-payment will ramp up when the Australian Medical Association releases its alternative plan for a co-payment.

This will propose exempting concession card holders, children, and the chronically ill and contain safeguards for indigenous health services. It would not deliver substantial savings. In an interview on Wednesday Abbott sounded as though he might be amenable to cutting back the co-payment for pensioners but not exempting them altogether.

In evidence before a parliamentary committee on Wednesday, Reserve Bank Governor Glenn Stevens (who spoke of the need to generate the “animal spirit”, or confidence, to generate new investment) captured the budget problem in a nutshell.

“From where I sat, I did not think, really, that the budget was that draconian, frankly, in a macro economic sense. I am not talking about this measure or that measure; I am talking about the pace of intended consolidation over a run of years. That is actually not that tough, frankly.

"I do not think that there is any doubt that over a horizon of five, six, eight, ten years, we have to have a material amount of consolidation. Whichever government is in power today and/or in the future, they are going to face that imperative. How you do it is a judgement call at the political level.”

There you have it. In broad economic terms, the budget is not nearly as harsh as the sum of its political parts. Its weakness has been in the nature and mix of the individual decisions – the “judgement call at the political level” – and it is those that are at issue with the Senate.

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