Josh Frydenberg will try to return to the future charted in his 2019 budget, but it is not the same future

Josh Frydenberg, in next week’s budget, will try to return to the future charted in 2019, in the context of what was done in 2020 and 2021. That means a redefinition of good fiscal governance.

Treasurer Josh Frydenberg brings down his first federal budget in April, 2019. Picture: AAP​

Treasurer Josh Frydenberg gave a very robust speech on Friday that directly and indirectly projected Australia’s future and your future, built around both the policy and political dynamics of the coming budget.

Yes, this budget is going to be overwhelmingly about crafting handouts within a broader and more fundamental good governance upbeat “message’’, designed very specifically to try to the win – what right now, looks like – the unwinnable election in May.

On the most basic level, that makes it very different to the last two budgets which were “all about Covid’’. They were built on handouts by the tens of billions of dollars and damn the fiscal consequences.

This one will be built on ‘‘measured’’ handouts – one of the centrepieces being some form of replay of Peter Costello’s $300 “cheques in the mail’’, to then “pump’’ into your petrol tank – combined with a “back to a semi-rigorous fiscal future’’.

Just take a moment, to think about how Frydenberg’s journey through four budgets, since he became treasurer in August 2018, demonstrates the yawning uncertainty of existence, and the utter impossibility of making economic and budget forecasts.

In his first budget, in May 2019, he unveiled a $7bn surplus for the coming 2019-20 year and further, bigger, surpluses each year through the 2020s, as far as the fiscal eye could “see’’.

There was an “interesting’’ – ominous – symmetry with former Labor treasurer Wayne Swan’s 2012 budget that similarly predicted surpluses immediately and fiscally forever.

Although Frydenberg – only just – avoided repeating Swan’s unfortunate opening words in his 2012 budget speech: “The four years of surpluses I announce tonight.”

Frydenberg instead kicked off with: “Tonight, I announce that the budget is back in the black.”

Well, when a certain virus checked out of a Chinese lab later that year and grabbed a flight from Wuhan, probably to Milan, Frydenberg’s surplus evaporated like Swan’s had seven years earlier.

Instead of a $7bn surplus in 2019-20 we got a $85bn deficit – the result of a combination of the government shutting down the economy in the June 2020 quarter and all the spending it then threw at that (second) recession we had to have.

So that was Frydenberg’s first budget: after six years of returned Coalition government, finally, finally being able to “reclaim’’ Peter Costello’s surpluses, supposedly of right of Liberal treasurers; only to have it all dashed on the cruel fate of Covid.

So Budget Two, delayed as it had to be to October 2020, was full of rich red ink, and so also Budget Three; both so utterly different to the path charted back in 2019.

Now, finally – and maybe that word will prove to be exactly accurate after a certain day in May – Frydenberg is trying to return to the future charted in 2019, in the context of the reality of what was done in 2020 and 2021.

That combination means a fundamental redefinition of good fiscal governance.

It’s no longer budget surpluses, and therefore continually falling actual dollar government debt, to presumably the zero debt and indeed actual positive balances captured in the Future Fund, both of which Costello left in 2007.

Now, good fiscal governance is re-defined as debt falling relative to GDP, as it nevertheless continues to grow in actual dollar terms because budget deficits are now a permanent feature of our future.

The absolutely critical assumption – and the (hoped-for) key fiscal dividend – was explicitly spelt out by Frydenberg.

“Provided nominal economic growth exceeds the nominal interest rate, economic growth will more than cover the cost of servicing our debt interest payments.”

Wow. That’s pivoting a lot – indeed everything – on a very unconvincing word: “Provided.”

And it’s not just “provided” something, actually a lot, happens for one year, or even for the four years formally detailed in a budget; but it has to happen every year pretty much forever and at least right through the 2020s.

It is a very ‘‘interesting’’ time to be making such a long-term assumption – as we take our first tentative steps into the (hoped-for) post-Covid world; central banks around the world take their first tentative steps to raise interest rates; and there’s that war in Ukraine that will go who knows where.

It didn’t exactly help generate confidence in these Treasury assumptions and “forecasts’’ that Frydenberg also spelt out exactly how hopeless Treasury was in understanding what happens in the real economy.

Frydenberg hailed the 4 per cent jobless rate, shown in the ABS numbers on Thursday – after noting that Treasury had forecast it would only get back below 6 per cent at the end of 2023. Oh dear.

Let me be very clear. The forecasts we will see in the budget will be the ‘‘G-O’’ – the “Garbage-Out’’ of the ‘‘G-I’’, the “Garbage-In’’ of Treasury hopelessness and where we start from.

But they are, sight unseen, broadly where Frydenberg has to go; and we have to hope.

Originally published as Josh Frydenberg will try to return to the future charted in his 2019 budget, but it is not the same future