Only a miserable pessimist could quibble with this week’s strong economic growth figures - or someone who understands the national accounts. Wednesday’s data deal a further blow to the already damaged credibility of the official budget forecasts. Inflation was much lower in the March quarter than the budget forecasts assume for the coming financial year. And wages are flat. This matters for the budget bottom line, since income tax receipts rely on a reasonable level of price inflation together with rising real wages. Neither is present.
Add to that the silly iron ore price forecasts in the budget and you get the near-certainty that the actual budget deficit will be considerably worse than the $37 billion estimated at budget time just a month ago and reaffirmed in the pre-election economic and fiscal outlook a fortnight ago.
Here we go again. Under questioning from the media pack, both sides of politics will be tempted to pledge during the election campaign that there will be no further spending cuts or tax rises beyond those already announced. When the so-called blue book prepared by the treasury is handed to the incoming treasurer, it will warn of an imminent budget blowout and advise of the necessity of a new round of spending cuts to avoid a downgrade of Australia’s AAA credit rating.
If the government accepts this advice it will announce new savings measures, breaking its pre-election promises. The new senate will rightly argue the government has no mandate for these spending cuts and will block them.
Sensing the inevitability of all this, the shadow treasurer, Chris Bowen, has announced an incoming Labor government will rely on the independent parliamentary budget office for official forecasts and will bring down a mini-budget that protects Australia’s enviable credit rating.
But if Labor and the Coalition agree to play the media’s rule-in, rule-out game, they will have no room to manoeuvre. If they refuse to play, they can expect headlines screaming: “[insert leader’s name] refuses to rule out further spending cuts and tax hikes]. Under pressure, both leaders are likely to succumb – just as Tony Abbott did on the eve of the 2013 election when he promised no cuts to health, education and pensions, only to break all those promises and more in the notorious 2014 budget that destroyed his prime ministership.
After almost four years of falling or stagnating incomes, voters would be incensed by this breach of faith by an incoming government. They will not accept the facile excuse that the new government didn’t know the cupboard was bare. That leaves only one other option for the incoming government – keep all its promises, jeopardise our credit rating and pile up debt to be repaid by future generations. It’s as if the present generation of Australians are asking: “what’s the future ever done for me?”
Yet Australians will accept a proposition if it has merit and is put to them openly and candidly. Both parties should not just acknowledge that we must live within our means; they should explain that in government they will do the right thing by the Australian people. If that requires new spending cuts and tax rises not foreshadowed during the election campaign then so be it.
This might seem fanciful but it has been done before with great success. The Hawke government was re-elected handsomely in 1987 having announced swingeing spending cuts in the August 1986 budget and in a 1987 May statement. The public reacted so favourably to the May statement, titled “restraint with equity”, that Hawke called an election within weeks of its delivery.
In the Howard government’s first budget after the 1996 election it announced large spending cuts, including many that it had not set out before the election, and which put the budget on a path to surplus.
The public are not mugs. They know what’s going on. They know what’s needed. And they will reward candour and honesty from leaders who show them respect by levelling with them. During such a long election campaign, the temptation for the leaders will be to run around the country making announcements of new spending. Each time they do, they contradict the message that we must live within our means. They are channelling St Augustine: “Lord make me pure but not just yet.” With just four weeks to go before polling day, the blessing of purity awaits the leader who is willing to make the necessary sacrifice.