Spoiler alert: Here’s what to expect in the budget
As we wait for Wayne Swan to announce his fourth budget deficit, here’s a small preview of what to expect. Warning: the following contains plot spoilers.
Wayne will claim credit for the work of others, ignore his record and point to promises not achievements
Wayne Swan will try to take credit for outcomes built on economic reforms that he had nothing to do with, and in many cases opposed.
Like repaying $96 billion of Labor debt, reforming the financial system, tax reform, strengthening prudential supervision and welfare-to-work reforms. All achievements of a Coalition Government. All critical to Australia’s response to the GFC (along with Chinese demand and, it must be said, some Hawke-Keating era reforms).
The Treasurer will ask us to believe that net debt of around $100 billion in 2011-12 is a good result by referencing other countries.
Never mind that Australia started in a different position to those countries: with no net debt and $60 billion invested through the Future Fund. Never mind that Australian banks didn’t need to be bailed out or that Australia is uniquely placed to benefit from the China boom.
Wayne will definitely ask us to overlook that he has never delivered a surplus.
A reminder of Wayne’s record so far: a $27.1 billion deficit in 2008-09, a $54.8 billion deficit in 2009-10, and predictions of a $41.5 billion deficit for 2010-11 as recently as November.
Yes – that’s right. The Government estimated in just November last year that its deficit would be $41.5 billion, but now, little over 6 months later, Deloitte Access Economics is predicting that the deficit will be more like $51 billion. Once upon a time, a $10 billion blow-out would be unheard of, but we have come to expect it from this Government and its Treasurer.
But Wayne will tell us that it’s all OK. He will tell us that at some point in the future, he will deliver a surplus. Wayne will ask us to ignore the desert and focus on the mirage.
Wayne won’t factor in the carbon tax
Wayne Swan has claimed that his upcoming budget will be a jobs budget. And we all hope that it actually is.
But expect Wayne to talk only about job creation. He won’t talk about job destruction.
That’s one reason why Labor will deliberately keep the carbon tax out of the budget. It would be inconvenient to have to talk about our trade-exposed industries becoming less competitive. It would be inconvenient to talk about Australian jobs going offshore. It would be inconvenient to talk about the impact of rising input costs on small businesses and their ability to employ people.
And with price increases starting to eat away at family budgets, Labor definitely won’t want to draw attention to the carbon tax ramping up the costs of living.
Although the carbon tax represents a revolutionary change to the Australian economy, don’t expect to hear much about it. Don’t expect its impact to be factored into the forward estimates.
Wayne will talk about the best interests of the country – but will focus on the best interests of the Labor Party
In his first budget speech four years ago, Wayne Swan warned of the dangers of inflation. He said Labor was committed to improving productivity and reforming the tax system.
He should do more than just talk about it. He should focus on it. And while he is at it, he should focus on our two-speed economy; the sustainability of the resources boom; and the extent to which Australia’s economy is being leveraged to the resources sector. He should focus on the challenges of a higher and more volatile Australian dollar.
More importantly, he should propose and deliver on genuine reform to address these challenges – not just policies to address Labor’s political interests.
Labor has not implemented a single piece of economic reform that might improve our nation’s long-run productive capacity.
Labor only seems interested in things that they think will play to Labor’s political agenda. Bleeding votes to the left? – propose a carbon tax. Bleeding votes to the right? – talk about welfare-to-work reforms. Youth vote leaking to the greens? – talk up an unaffordable Rolls Royce broadband network. Program costs going to blow-out, cost billions, drive wage inflation and cripple that same youth vote for years to come with higher taxes? – don’t worry about it, it might not show until after the next election.
In May 2008 Wayne Swan stood at the dispatch box and said “Tonight, I confirm the most comprehensive review of Australia’s tax system since World War II.” But what has happened to it? The Henry Tax Review is gathering dust. He deliberately ignored the Henry Review’s conclusions on retirement savings. There were 138 recommendations in the tax review. You can count on one hand the number actually being pursued: most recently (it appears) the FBT proposal on cars and most famously the poorly conceived RSPT.
Wayne will emphasise the headwinds, but not the tailwinds
On Tuesday night, Wayne Swan will tell us that his fourth deficit is not his fault.
He will blame a high Australian dollar, natural disasters and the financial crisis. He may even tell us what the budget might have looked like without some of these challenges. Never mind that it is his job to manage around them.
He won’t mention the headwinds Labor created – the excessive, poorly targeted stimulus spending that still continues to this day. He won’t mention the billions of dollars that the Government has wasted on combustible roof batts, program blow-outs and overpriced school halls.
And he certainly won’t emphasise the greatest tailwind delivered to any Australian Treasurer. As the RBA said in its Statement on Monetary Policy on Friday “the forecasts imply that the terms of trade in 2011/12 will be at their highest level since at least 1870 (where the data began).” You can bet Wayne Swan won’t be talking about the size of the structural deficit and what the budget would look like if Australia’s terms of trade returned to long-term norms.
But you will hear the excuses. Nothing is ever Wayne’s fault.
Wayne’s budget won’t pass muster
A successful budget needs to pass three critical tests:
1. Is it credible?
2. Does it ease short-term pressures – like those faced by Australian households and small businesses?
3. Does it make the right choices for the longer term – so that future generations don’t end up having to pay more that their fair share?
Sadly for the Australian people, I predict that Wayne Swan will again fail all three. Sorry to give away the ending.
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