Self-proclaimed Liberal soul can’t budget for the times

The need for budget repair, like political bias, is in the eye of the ­beholder.

The need for budget repair, like political bias, is in the eye of the ­beholder. Progressive commentators were happy this week to welcome the Turnbull budget.

Typical of the type was Mark Kenny’s analysis in the Sydney Morning Herald on Thursday.

Welcoming it as a “retreat” from the failed 2014 budget of Tony Abbott and Joe Hockey, he wrote: “Turnbull is determined to shift his party back to the ‘sensible’ centre ground ... eschewing the high and arid plain so coveted by the nostalgic ideologues in his party room ... and the barrackers on subscription television ...”

Doubtless he was thinking of, among others, Andrew Bolt, who on his Sky News program last Wednesday night and in his blog proclaimed the Liberal Party had “raised the white flag”, its central spending restraint ethos vanquished in favour of Labor-style big spending.

It was a theme taken up by many of the News Corp papers on Wednesday morning, and it is largely true.

So where is the ideology here? As most economists argue, repairing the structural integrity of the budget is important. Towards the end of the Rudd-Gillard-Rudd era we had the highest terms of trade in the nation’s 230-year history and a series of record deficits with no recession.

It is undoubtedly ideological to argue those deficits did not matter, as many at Fairfax Media and the ABC do. Labor steered the ­nation through the 2008 global ­financial crisis precisely because it was bequeathed a $22 billion ­surplus and zero net debt by the Howard government in late 2007. That, the China boom, a 300-point fall in Reserve Bank cash rates and a massive depreciation of the dollar did far more than Labor’s stimulus.

In fact, it was all the reforms of the Hawke-Keating and Howard-Costello eras that pulled the ­country through. Yet times change and what was the right idea in 2014 in the first Abbott budget after a landslide election win (if very badly executed in political terms) may not be right today. The economy is making the transition away from the mining boom and growth and jobs are relatively strong.

Niki Savva captured the politics exactly in this paper on Thursday morning and for once the feedback on her story was not completely overrun by conservative bitterness. “Shame on Malcolm Turnbull and Scott Morrison for not writing the longest suicide note in political history and presenting a budget with no hope of getting past the Senate.” Exactly right.

Yet former Abbott chief of staff Peta Credlin in this paper and on Credlin Keneally on Sky News on Wednesday night argued this budget’s pragmatism marked the end of the Howard-Costello legacy for the Coalition.

A few smart commentators including Savva pointed to the infamous Shane Stone “mean and tricky” memo from 2001 that eventually saved that year’s election for the Coalition. That was when the supposedly pure ­Howard junked his fiscal rectitude and threw the kitchen sink at political survival. Newspoll tracking proves beyond doubt that Howard’s fortunes began to turn with that spending rather than the Tampa turnback, as many on the left wrongly argue.

Remember Coalition backing of the Adelaide-Darwin rail link (sounds like this budget’s Melbourne-Brisbane Line), the end of petrol price indexation and later the various incarnations of the baby bonus after 2004, family tax benefits Part A and B changes from 2000, mammoth superannuation concessions for retirees (usually Coalition voters).

In fact there is a strong argument supported by some conservatives that the genesis of the nation’s spending problems traces back to that election and later to the first round of the China mining boom.

The idea of giving the boom’s proceeds back to tax­payers through recycled welfare payments and tax cuts seemed compelling at the time, but baked in expectations in voters’ minds that governments have been unable to change.

Media should be very cautious about accepting claims by conservatives, especially unelected ones, that they represent the soul of the Liberal Party. Any cursory look at the Howard and Menzies governments makes two things clear: both were pragmatic and both were a broad church representing social conservatives and liberals and economic liberals and interventionists.

Remember Menzies introduced the child endowment payment, started the first big round of expansion of the university sector (lifting the number of unis from six to 16) and introduced state aid to non-government schools.

Howard lifted tax as a percentage of GDP to 24.1 per cent in the period 2001-2006. In 2014-15 it was 21.9 per cent. The average from 1971 to 2005 was 21.5 per cent, so conservative claims Howard was averse to taxing and spending are wrong. In fact, like Keating, Costello had to fight hard to keep money away from his PM’s schemes, locking up cash in the Future Fund and the Higher Education Endowment Fund.

Here’s the thing about conservative and small-l liberals. Howard the conservative loved populist vote winners and Cos­tello the social progressive was a staunch defender of the public purse. So what have Turnbull and Morrison really done? They have accepted the Senate the voters keep delivering and worked around it. They have accepted and paid for the NDIS Abbott committed to. They have neutralised the Gonski time bomb left first by Wayne Swan and not defused by Abbott. They have come up with Gonski 2.0 for $12bn less than Labor proposes.

This paper argued for a NDIS for many years, not because it liked big government-spending programs, but because in the era after state government deinstitutionalisation of the 1980s ordinary families were left alone to manage profoundly disabled children, sometimes well into their 80s for some parents. The Productivity Commission, the driest economic body in Australia, supported the plan and recommended a levy like the half per cent Medicare rise introduced on Tuesday. The scheme will need to be managed lest it blow out of control.

But as economist Chris Richardson keeps saying, societies make choices and those choices need to be paid for.

Conservatives are at risk of appearing to Coalition governments what the Victorian Socialist Left used to be to the Labor Party: the faction that always threatened their own party’s grip on power.

Yet they have a point on Scott Morrison’s 0.06 per cent bank levy. All the tabloids loved it — and who could fail to be amused by the Daily Telegraph headline on Thursday “What a bunch of bankers”.

The levy does have the look of the mining super profits tax about it and many suspect punishment for appointing former Queensland Labor premier Anna Bligh chief executive of the Australian Bankers Association. That and a bit of populist bank bashing to match Labor’s.

Best argument in favour of the levy, apart from budget repair, was made by Chris Joye in The Aust­ralian Financial Review on Friday. Joye noted the five banks to be slugged already benefited from an implied double upgrade by the ­ratings agencies on the back of ­assumed government guarantee of their solvency.

So is the era of deficit repair ­really over? I think not. If the economy manages to grow for another four or five years and voters stick with the Coalition rather than Labor, which now looks ­reckless in its attitude to spending, taxation of middle income PAYE taxpayers and anti-business company tax rhetoric, growth will take care of the deficit.

I am left to wonder though why so many media conservatives on radio and pay-TV rail so hard against deficit financing but give such enormous publicity to the crossbench independents who have since 2014 blocked budget repair. And as this paper’s Adam Creighton revealed last month and Bolt mentioned again on his Sky News program this week, with 60 per cent of households now receiving more from the government than they pay in tax, the system needs reform so voters do not simply opt for ever more spending financed by those few in society who actually pay for everything.