Budget does the time warp

Tonight's budget is shaping up as a scene from the Rocky Horror Show. You know, the one where the cast does the time warp. For most of his prime ministership, Malcolm Turnbull has been trying to appease his party’s hard right by embracing their policy positions – on climate change, same-sex marriage, English-language proficiency for citizenship and denial that the budget has a revenue problem only a spending problem. Having taken a step to the right since he won his party’s audition for the top job, Turnbull is now signalling the budget will involve a jump to the left – more spending, more taxes, no more debt and deficit disaster, just good and bad debt.

Turnbull’s gyrations will isolate and infuriate Tony Abbott’s hard right. The battlelines will be drawn. Not those that Abbott drew in his 2009 book of the same name – where he argued the merits of universal age pensions, family payments and baby bonuses.

Not the battlelines Abbott drew in his disastrous 2014 budget – where he made savage cuts to health and education after promising at the preceding election not to do so.

No, the new battlelines will be drawn over Turnbull’s funding cuts for Catholic schools, including some of the wealthiest in the country. Abbott has already promised a vigorous party-room debate ahead of the budget.

Turnbull hopes his jump to the left from his earlier large step to the right will place him somewhere in the sensible centre, improving his position in opinion polls, isolating Abbott and calming the nerves of marginal Coalition members.

But while the politics of the budget have changed the economics have not. Treasurer Morrison has assured us the economy has turned the corner. Yet real wages continue to fall and the slack in the labour market is as bad as it was three years ago.

How do we know? The government statistician releases a series called the labour underutilisation rate. It comprises the unemployed, underemployment among those working part time but wanting to work longer hours, and those who have simply given up and left the labour force.

At 14.4 per cent, the underutilisation rate is hovering around the highest level so far this century, including during the Global Financial Crisis and the global recession of 2009. Among young people, the underutilisation rate is a staggering 31 per cent. No wonder so many young people despise the political class and are attracted to One Nation.

Palliatives to ease energy costs and the squeeze on first-home buyers might give the budget an afterglow, but whether the budget improves the Coalition’s political fortunes will depend not on favourable media coverage but on how it eventually affects the lives of those who are struggling following the mining boom’s end.

At the beginning of the 2016 federal election campaign I wrote in these pages that the party that set out a credible path back to budget surplus would win. The Coalition’s path was barely credible and it barely won.

Redefining the task now, away from a return to surplus to racking up good debt but not bad debt, would not cut the mustard with the ratings agencies. The last five budgets have projected a return to surplus in the fourth year of the forward estimates, a shimmering mirage on the horizon. They have done so simply by assuming, after two years, that the economy will return to long-term trend growth plus a little more, as it soaks up the excess capacity associated with the post-mining-boom downturn.

As we move one year closer towards the surplus on the horizon it slips over the horizon by exactly one year. Unless the Treasurer announces major new revenue measures tonight, this game is set to be repeated and he will forecast a return to surplus – you guessed it – in the fourth year of the forward estimates.

Alternatively, the Treasurer might recognise that the surplus-by-assumption game is up and point to a surplus on the recurrent account as he dumps all capital spending into his newly promoted capital account.

That, of course, assumes all capital spending is good, including building offices in Armidale for public servants relocated from Canberra and roads upgrades with poor benefit-cost ratios in marginal electorates.

Laborshould support budget savings and revenue measures that pass the fairness test and, in its budget reply on Thursday night, outline measures that it would adopt that the government has squibbed for lack of political courage.

As they perform do the time warp tonight, let’s hope Turnbull and Morrison spare us a pelvic thrust. That would drive us all insane. 

Source: http://www.afr.com/opinion/columnists/budg...