Divining the May 2016 federal budget

Some of you may question the purpose of trying to divine what will be in the May 3 federal budget when the Turnbull Ship of State seems to be all at sea, wallowing towards an unknown destination, facing strong headwinds, its sails flapping, its hull leaking, with a dithering Captain at the helm, a loquacious and at times incoherent First Mate insisting he knows where he’s going, and a motley crew.

In these days of social media diversity though, there is the opportunity for average punters to express opinions, to have them read, and to expect them to evoke responses from others. So here goes.

What will be in the budget, as distinct from what will not, remains a mystery. Although in only a few days Treasurer Scott Morrison will stand up in the House at 7.30 pm on May 3 to tell us all, we have heard very little from him or PM Malcolm Turnbull. It is now usual, days before a budget is delivered, for advance notice to be given about the good news, and some of the bad, as we have seen recently with the Victorian state budget delivered on 27 April. What have we heard from the LNP?

Have we seen an economic narrative, apart from the Turnbull admonition that we must personally, and as a nation, be agile, innovative and creative? In his first statement after his election to prime ministership, he said that his government would be “…focused on ensuring that in the years ahead as the world becomes more and more competitive and greater opportunities arise, we are able to take advantage of that…We can’t be defensive, we can’t future-proof ourselves…We have to recognise that the disruption that we see driven by technology, the volatility in change is our friend if we are agile and smart enough to take advantage of it.” Since then, that narrative has all but evaporated. The three-word slogan: ‘agile, innovative and creative’, has become meaningless in the absence of practical applications of those ideals.

Niki Savva summed up the situation in her opinion piece in The Australian on 28 April: Budget 2016: Morrison has one chance, yet he’s up against it: “There is so much riding on Tuesday’s budget, for the Treasurer personally and government generally, it is hard to pinpoint another time when there has been so much pressure on a treasurer… So little time, so little money, so few options. Everything about this budget promises to be modest, except what it is expected to achieve.”

Against that background let’s divine what might be in the budget and what will not.

There are some inviolate LNP principles that can guide us:

First, don’t upset LNP supporters:

• voters in LNP electorates, especially those held marginally;
• those enjoying the liberal tax concessions of negative gearing, capital gains and superannuation;
• big business and the top end of town;
• bankers;
• coal miners and coal seam gas extractors;
• small business and ‘Mum and Dad’ investors;
• climate change skeptics;
• those who share the LNP attitude to asylum seekers;
• the right wing conservatives in the LNP, the Nationals, opponents of marriage equality, and the Australian Christian Lobby;

Next, adhere to the economic principles espoused by recent LNP treasurers and prime ministers:

• ‘we don’t have a revenue problem; we have a spending problem’;
• ‘we must live within our means’, an appealing metaphor for household finance that is inappropriate for national finance;
• reduce and eliminate the budget deficit;
• reward Joe Hockey’s ‘lifters’ and penalise the ‘leaners’ who sponge on the welfare system;
• reward those at the top and benefit will trickle down to those at the bottom;
• reduce taxes; avoid raising taxes; avoid removing tax concessions;
• focus on ‘jobs and growth’, a three-word slogan we hear day after day, week after week. It sounds good but when do we ever hear how ‘jobs and growth’ are to be achieved? It’s a meaningless mantra when devoid of a plan, but no doubt credible to the unthinking who avoid asking: “How?”
• despite all of the above, Turnbull, with Morrison echoing sotto voce, will insist that the budget will be ‘fair’. But any attempt to reduce inequality will likely be minimal, despite the fact that inequality will be a hot button election issue because the electorate is becoming increasingly incensed by the unfairness and inequality it sees every day.

The difficulties in framing a budget in such difficult fiscal times have been well summarized by Niki Savva:

“It is impossible to see how he [Morrison] can meet the expectations or satisfy the demands of the voters, the ratings agencies, the media (social and traditional), lobby groups, think tanks and his colleagues. Expect any sensible debate to be drowned out by the whinger class united and assorted merchants of gloom from Left and Right.

“The budget has to provide the foundations and framework for the government’s economic narrative, which centres on jobs and growth in the new economy. It has to fulfil the Liberal credo of lowering spending, lowering taxes and lowering or eliminating the deficit; it has to be economically credible and politically appealing; it has to relaunch the government’s political fortunes and cement the Coalition’s standing as superior economic managers.

“All that as more people say they want the money spent on paying down debt, just so long as someone else – say the multinationals, or anyone on a higher salary than theirs – does the paying.”

Savva continues:

”There is always pressure on treasurers to produce budgets that refloat the government or sink the opposition, but it is much more intense this time because of the proximity of the election, combined with the newness of the government. It is the first Morrison budget, even though it will carry the full imprint of Malcolm Turnbull, and it will come a mere 60 days before the election.

“Although that sounds like a long campaign, there is not enough space between the budget and the expected July 2 election for a misfire to be forgotten. There is no margin for error. If Morrison mishandles it, it could well be his last major economic statement, and a serious setback for what had once seemed a clear path to leadership. If budget measures or projections collapse under scrutiny, if his speech is a flop, if he pays too much attention to the politics rather than the policy, if he makes a mistake in the selling of a document that he should, by now, know backwards, it could spell the beginning of the end of the Turnbull government.”

Against that realistic backdrop, let’s look at what might be in the budget, or perhaps more sensibly look at what won’t be in the budget:

• no increase in the level or scope of the GST (ruled out in terror long ago);
• no change to negative gearing (despite all the evidence that it needs radical change, which could add billions to revenue), and minimal or no change to capital gains tax concessions. Although such changes would benefit young couples hoping to buy their first home, they would hurt too many in LNP electorates, especially the top ten that benefit most, beginning with the PM and his Liberal deputy;
• only minor changes to superannuation concessions that will reduce the benefit to the highest of income earners, but leave the rest untouched;
• no tax increases or additions to the Medicare Levy; in fact almost no tax reform at all;
• no increase in personal income tax, and no decrease either (well over a half of voters would prefer more spending on social services than reduced income tax, with only a third advocating cuts);
• no increase in company tax, but possibly a reduction if the LNP is brave enough in the face of trenchant opposition in the electorate, where three out of four oppose any reduction in company tax. The LNP’s flawed rationale for a cut to company tax is that the benefits will ‘trickle down’ to increase workers’ wages!;
• a crackdown on tax loopholes, tax avoidance and evasion, particularly by multinationals;
• a levy on banks to support ASIC;
• an increase in tobacco excise (Tony Abbott’s ‘workers tax’, but by a more benign name);
• reduction in spending in unspecified areas (health, education, pensions and welfare payments are always targets), despite strong public opinion that voters would prefer the government to tax its way out of deficit rather than reduce spending on social services;
• increased spending on defence, especially on submarines, frigates and border patrol vessels;
• increased spending on ‘border protection’, especially now that PNG has ordered the closure of Manus Island and redeployment of the 850 refugees and asylum seekers there, and Turnbull has rejected New Zealand’s offer to take 150 of them. As local traders and employees are insisting on compensation once Manus is closed, more funds will be needed, adding to Morrison’s woes;
• modest spending of $50 million for feasibility studies on infrastructure, with major emphasis on Turnbull’s ‘thirty minute cities’ to be supported by an investment-banking style “innovative financing unit” to devise funding deals for multibillion-dollar transport projects;
• little or no additional spending on environmental issues, renewables, and the bogus Direct Action Plan, despite Greg Hunt’s repeated charade that he will ‘meet and beat’ the Coalition’s 2020 targets;
• measures to manage the transition from an economy based on an unprecedented mining construction boom to the new diversified economy of the 21st century to ensure sustainable prosperity and full employment. Despite KPMG’s advice to increase the Newstart Allowance, improvements to unemployment benefits are inconsistent with conservative beliefs and are therefore unlikely;
• little or no attempt at increasing revenue, although there will likely be measures to reduce the budget deficit – so-called ‘budget repair’ (which, according to Deloitte Access Economics is likely to blow out a further $21 billion despite anything that Morrison does. Moreover, Moody’s Rating Agency says our triple A rating is threatened unless revenue measures accompany spending cuts).

Policy wise there will be:

• no Royal Commission into banking, despite all the evidence of unfair practices, dishonesty and fraud;
• further attempts to introduce changes to Medicare, the Pharmaceutical Benefits Scheme, and imaging and pathology rebates to reduce health costs;
• further attempts to restrict the costs of the National Disability Insurance Scheme;
• further attempts to effect changes to university funding towards a ‘user pays’ arrangement;
• further attempts to avoid the cost of the Gonski schools reforms in years five and six;
• further attempts to rationalize the LNP’s approach to the NBN, in which costs are blowing out, implementation is slowing, and speeds are poor;
• further attempts to rationalize and sell its Direct Action Plan for climate change to a skeptical audience of economists and environmentalists and a suspicious public, who ask what is causing the unusually severe drought and the coral bleaching, and what is the LNP doing about them;
• further attempts to justify its ‘border protection’ policy, and the slow receipt of refugees from Syria.

No doubt there will be some surprises, maybe a few bits of good news, and likely some flimsily disguised bits of bad news that will be painted as necessary, even good for us. After all, we have ‘to live within our means’ and we can’t spend more than we collect in revenue, like Labor always does.

There will be an abundance of hesitant, unconvincing spin from Malcolm Turnbull, lots of econobabble from Scott Morrison’s motor mouth, lots of backing up from dalek Mathias Cormann, who will repeat his lines tediously, repeatedly, endlessly, with Kelly O’Dwyer bringing up the rear in her own inimitable style.

Whatever is in the budget, it would be impossible to satisfy all, or even a fraction of the stakeholders. There will be lots of commentary from experts and amateurs alike, many confrontations in the media between them and the politicians, and hesitant and unconvincing responses from them.

We will hear endlessly that the budget is all about ‘jobs and growth’, lavishly embroidered with the LNP’s favourite mantras. We will go to sleep murmuring ‘jobs and growth’, ‘jobs and growth’, ‘jobs and growth’ until men in white coats take us off to receive therapy for obsessive compulsive disorder. At least it will be peaceful there!

What do you think the May 3 Budget will include?

Do you believe that Morrison and Turnbull have got the message about the need for more revenue?

This article was originally published on TPS Extra