By Michelle Grattan, University of Canberra
This is a Budget for when the economy has gone soft and the political situation is precarious.
The bold reforming zeal, accompanied by a “we know best” attitude, of last year has gone. The government reaffirms its commitment to long-term fiscal repair. But this Budget is driven by the imperative of short-term survival – Tony Abbott’s most immediately and the government’s at the election.
The Budget puts the same timetable on the return to surplus, in 2019-20, as it did last year, “despite the headwinds”, which so far have included the massive downgrade of revenue following crashing iron ore prices and slow wage growth. As far as this heroic surplus claim is concerned, one might say “we’ll believe it when we see it”.
Treasurer Joe Hockey’s tone is upbeat about the economy. As he told journalists in the budget lock-up: “You can always look at the dark side of life – not me”.
In his Budget speech he said “the global economy is turning for the better”.
But the caveats are many. The Budget’s statement number two on the economic outlook warns that “while risks have somewhat abated for the global economic outlook, risks remain, notably with China’s transition to a more sustainable growth model”. This transition “may not be smooth, presenting changing demand patterns for Australian exports”.
And then there is the whole issue of domestic confidence. “The pace and timing of the recovery in non-mining business investment remains a major source of business uncertainty,” the statement says. “If demand and confidence fail to lift, there is a risk that the recovery in non-mining business investment could be further delayed.”
The Budget puts considerable faith in the small business sector to give the economy a shove along. A $5.5 billion jobs and small business package includes a tax cut and an immediate tax deduction for new assets costing under $20,000. When Hockey was asked about a possible cost blow-out to the Budget of the deduction, he rejected out of hand any such worry. “This is about getting on with it,” he said. If there was an exceptional response to the measure, it would just mean the economy was going to grow faster.
The shake up of childcare, announced on Sunday, is being cast by the government as particularly directed to encouraging people to work more or, for those not working, to get into the labour force. While this is admirable in theory, the problem in a sluggish economy is finding work. The unemployment rate is forecast to go from 6.25 per cent in 2014-15 to 6.5 per cent in 2015-16.
With youth unemployment at unacceptable highs, the budget includes a youth unemployment strategy worth $330 million. But the real determinant on employment must be economic growth - and that is projected to be only 2.5 per cent in 2014-15 and 2.75 per cent in 2015-16.
The Budget’s story on welfare is relatively nuanced and politically attuned, in contrast to last year’s approach, which did not hesitate to kick many people who were down. The pension package, announced beforehand, imposes a sensible assets test and drops the 2014 proposal – that had no hope in the Senate – to cut back the indexation rate.
Last year the government announced that people under 30 would have to wait up to six months to get the unemployment benefit. It was a harshly ideological, ill-thought out measure, again with no hope of passing the Senate. It has now been replaced by a four-week wait for people under 25. Asked about this, Hockey said that “we listened and we heard”.
Social Services Minister Scott Morrison, who has been the smiling face of the childcare handouts, also has significant savings in his area – on pensions and on the family tax benefit changes inherited from last year. Morrison was at the centre of the pre-Budget selling; he’ll also be front and centre as the government negotiates to get its measures through the Senate.
The Budget is much fairer than last year’s, which was grossly unfair. It is certainly less provocative.
Its critics will say it’s much less reformist, whether in the boldness of its measures or the speed of fiscal consolidation. Its defenders will say that moving too quickly and hurting too many people has been shown to be counter-productive, both in terms of getting things done and in coping with the politics.
The government has made a better fist of it this year than last year, but its complete misjudgement in last year’s Budget has constrained what in fact it could do this year. Inevitably, this Budget was going to have to cope with changed economic circumstances and the dramatic fiscal problem of revenue write-downs. But beyond that, a lot of the effort in the second Budget had to go into dealing with the consequences of the mistakes of the first Budget.
It’s too early to tell how the Budget will play out for Tony Abbott. That will depend on the reaction of the stakeholders, the public, the Senate and his own backbench. That reaction will in turn depend not just on the measures themselves, but the effectiveness of the government’s selling of them as they come under intense scrutiny in the days and weeks ahead.
Michelle Grattan is Professorial Fellow at University of Canberra.