Budget must move beyond political fetish


18th century British Prime Minister Robert Walpole The practice of presenting the budget to parliament came out of a crisis, and illuminates its political nature. In 1733, after months of heated rumour, the British Prime Minister Robert Walpole (pictured) announced a plan to impose an excise tax on wine and tobacco.

The purported intent was to curb customs fraud, but it was seen to shift the tax burden borne by land-owning gentry onto consumables, with greater impact on the poor.

It was met with vehement outrage. The first budget reply was published by Walpole's fellow Whig, William Pulteney, who mocked the announcement of an open secret as the 'art of political legerdemain'.

In other words, budget presentation did not start out as a neutral exercise in transparency but as a mishandled piece of political communication and a misreading of what commoners are willing to bear. This would have felt the case for the Coalition government for most of last year, as it struggled to justify proposed changes to Medicare, university fees and youth allowance.

Few would now contend that a massive deficit is inconsequential, but in framing revenue decline as a spending problem rather than a fiscal or structural one, Treasurer Joe Hockey last year delivered a budget that had the greatest impact on those least able to bear it. The intense political backlash and ensuing policy reversals seem to have raised a degree of circumspection.

For instance, the upcoming budget seeks to consolidate the Childcare Benefit and the Childcare Rebate into a single, means-tested payment. It is a sensible move. The non-means tested rebate cannot be sustained when so many families struggle to pay fees upfront. It is worth asking, however, how far the proposed tapering goes in improving childcare accessibility for struggling parents, when families earning more than $250,000 are still eligible for 20 per cent subsidy.

Tightening the asset test for pensions is also a tempered approach to the budget deficit. Retirees who own their own homes and have other assets worth more than $823,000 will no longer be able to claim a part-pension. The policy would leave low- to middle-income retirees $30 better off each fortnight, while also saving the government around $2.4B over two years.

In other words, the Abbott government seems to have found a few savings options that it can sell. Rigorous means or asset tests that recalibrate social expenditure in favour of those in greater need are easier to justify than an indiscriminate hack-and-slash.

It also makes sense as we enter leaner economic conditions for safety nets to be better targeted. Otherwise, the Dickensian narrative from the previous year – where those least able to cope with cuts bear the most impact – will haunt the Coalition through the next election. In order to change the script, it will also need to recalibrate the current cost of fiscal policy.  

But as far as we know, Abbott and Hockey continue to shirk major changes that would bring more substantial and structural savings to the budget. This includes abolishing negative gearing, tightening superannuation breaks for high-income earners, reducing the capital gains tax exemptions, and broadening or raising the GST. The first three measures would save the government around $20B each year.

The Prime Minister needs to stop trying to assure us about 'a credible path back to surplus'. It reflects a political fetish rather than an economic priority, and is out of step with what people want.

Most Australians are beginning to understand what it means to have declining mining revenue, slow wage growth, weakened monetary policy (where interest rates alone won't stimulate growth), and increasing welfare eligibility. We already know that happy hour is over and that sobriety is due. Whether the political class will manage that transition in a steady, clear-headed way still remains to be seen.

Fatima Measham

Fatima Measham is a Eureka Street consulting editor. She tweets @foomeister.

Topic tags: Fatima Measham, Budget, economics, Tony Abbott, Joe Hockey, politics



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Existing comments

Quite right Fatima. But so far too little too late from a government with firm favourites. For example, I cannot understand why the family home is exempt from the pension algorithm. Why is wealth in property regarded as sacrosanct and different from wealth in other forms. Reverse mortgages would take the sting out if it, as would a threshold, of say $850K as for other assets. This is just protecting the prospective heirs of the middle class.

Eugene | 12 May 2015  

Interesting article and I agree with most of your comments. The budget will be gentle, not because the government wants it that way, but they know the last was unfair and they want to be re-elected. The minor pension and childcare changes seem OK. But the elephant in the room is the TAX system. The GST is one example of an unfair tax, because it is a user pays tax. If we care for family and the poor, it is not fair that they pay so much more of their earnings in tax than the rich. Broadening it to fresh food would be a crime. Fair taxes are paid in proportion to income. Our taxes are unfair and most very rich, pay little to no tax. Governments and the public focus too heavily on having a surplus, even if people starve while we get there. I could find savings; Super benefits for the rich, negative gearing, spending on war and lifelong perks for politicians. And that’s just a start.

Kate | 12 May 2015  

Should we praise Abbott and his mates for the meagre budget benefits they promise? The child care they promise is premised on parents working. The more they work the more child care they are entitled to. This is disgraceful. Not having a job is very often not a 'choice of lifestyle' but even when it is, should little children be deprived of access to child care. Some other countries combine childcare with education, realising how much toddlers absorb knowledge and the benefits for their future life and for society as a whole. This type of child care should be available to all and not be tied to being at paid work.

Anna | 12 May 2015  

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