AFR: The Speech the PM Should Have Given

Tony Abbott’s National Press Club speech was an unsurpassed opportunity to put the last 17 months behind him, chart a new course for his government and take the Australian people with him. Yet yesterday’s speech contained mixed and confusing messages: the budget needs repairing but new spending is appropriate, lessons have been learned but broken promises will be pursued.

The prime minister’s decision to deliver the speech on the first working day after a Queensland election, which he knew would involve the loss of at least 20 seats, risked media attention being diverted away from policy substance. The actual loss of government in Queensland, on top of Abbott’s bizarre appointment of Prince Philip as his latest knights and dames folly, ensured his leadership, not economic policy, would be the subject of intense media scrutiny.

Abbott’s speech kept faith with conservative philosophy but it did not keep faith with the Australian people. He confirmed he will press ahead in the Senate with a set of polices that are clearly broken promises. Having relentlessly branded Julia Gillard a liar for promising no carbon tax while at the same time leaving open an emissions trading scheme, Abbott cannot understand the public judging him by the same standard he set for others.

This self-inflicted problem was created in the days before the government’s formation when, cruising to victory, Abbott indulgently promised no cuts to health or education, no changes to pensions and no cuts to the ABC or SBS. He had also repeatedly promised “no surprises and no excuses.” When pressed on the condition of the budget not being an excuse to break promises, Abbott replied “Exactly right!” Indeed, two days before the election, having weeks earlier been informed publicly by Treasury of a deteriorating budget situation from falling mineral prices, the Coalition announced a four-year budget bottom line identical to Labor’s. Decisions announced in the post-election mid-year fiscal statement of December 2013 actually worsened the budget bottom line.

When asked yesterday about his myriad broken promises, Abbott used the excuse of changed budgetary circumstances, despite promising never to do so. In a statement that will further infuriate the public, he claimed he had kept his “fundamental commitments, the acts of faith.” Apparently, a promise, for example, not to deregulate university fees is not a fundamental commitment.

Make no mistake – Australia has a structural budget problem. The only viable course of action in yesterday’s speech was for the prime minister to level with the public, apologise for his broken promises and explain that the government would be pursuing budgetary restraint with equity. This columnist has already suggested a package of nine savings measures that, taken together, would pass the fairness test.

Abbott deserves credit for finally hearing the roar of colleagues to scrap his extravagant paid parental scheme. But he is devoting at least some of the savings to extra spending. Increased child-care subsidies, he says, will improve labour market participation. Perhaps. But the most pressing problem in the labour market is not inadequate supply of labour but insufficient demand for it.

For the sake of a stronger economy, large businesses are being expected to fund a further tax cut for small businesses, their tax rate staying at 30 per cent despite the scrapping of the paid parental leave scheme it was to help fund, while the small business tax rate is to fall again, below 28.5 per cent. No sound economic theory supports opening up a large tax rate differential between businesses of different sizes.

Australians are an optimistic and realistic lot. Tell them a true story about the challenges facing the country after the end of the mining boom and they will accept the need for restraint. Bob Hawke and Paul Keating proved this during the mid-1980s when our export prices last collapsed. They went on to win the 1987 election with an increased majority. Those who claim economic reform is no longer possible are wrong. But they, like the government, need to accept that the public will no longer tolerate political parties breaking promises.

Craig Emerson is managing director of Craig Emerson Economics and adjunct professor at Victoria University’s School of Business.