Election budget dumps reform in too-hard basket

When Josh Frydenberg delivers his big-spending, high-debt, large government budget tonight, it will represent an ideological wrecking-ball that sees a Coalition government adopt an economic and fiscal strategy that Labor could only dream of. It has early election written all over it.

The Treasurer’s third budget, and the second in response to a once-in-a-century global pandemic, is designed to assist the economic recovery with a focus on employment, training and social services, including new structural spending on aged care and mental health baked into the budget while delaying fiscal consolidation.

Yet the economy is stronger than it was before the pandemic. Growth is surging, unemployment is tumbling, the stockmarket is roaring, the Australian dollar is high, iron ore has hit more than US$200 a ton, house prices are surging, business and consumer confidence is up, and government revenue is flooding in. Australia is booming.

You would think this was the ideal time to begin a faster roll-back of the $250bn stimulus — the largest in Australian history — and use the rapidly improving economy to repair the national balance sheet. Instead, the Coalition will preside over a government sector larger than it was, and an economy stronger than it was, pre-pandemic.

The hard work of fiscal repair has been put off to future budgets. It is expected the government will forecast deficits until well into this decade. Australian government debt is now over $800bn and on track to reach $1 trillion. Of course, with record low interest rates, repayments on this debt are lower than they were pre-pandemic. But remember the “debt and deficit” mantra that was a mainstay of Coalition campaigning?

The sizeable improvement in the budget bottom line — with a 2021-22 deficit likely to be $30-$40bn lower than the estimated $198bn forecast the mid-year economic and fiscal outlook last December — has come about through increased revenue and underspends in stimulus programs. There was much more room to begin reducing spending now.

How different it is to the Coalition’s first budget delivered by the beleaguered Joe Hockey, who always over-promised and under-delivered. Gone is the tough language of “lifters” and “leaners” and the promise to “end the age of entitlement”. If you have a “back in black” mug, heralding the return to budget surplus, hold onto it because it is now a collector’s item.

Although the budget remains awash with red ink, the Coalition believes the pandemic has boosted faith in government and voters are eager for big spending on social and economic programs to continue. Joe Biden and Boris Johnson, in the US and UK, are adopting similar strategies. But the retreat from Liberal ideology, with its articles of faith being smaller government and balanced budgets, is profound.

So, along with an expansion of the social services component of the budget, there will be big-ticket spending on infrastructure and defence, along with new price-inflationary measures to encourage home ownership, encourage the take-up of clean energy and a series of initiatives targeted at improving “women’s economic security”.

In 80 days, Frydenberg will surpass Hockey and Scott Morrison to become the Liberal Party’s longest-serving Treasurer since Peter Costello. He is, no doubt, the most effective Treasurer since Costello. His authority within the government, unrivalled work ethic, command of detail and his calm, methodical, reassuring presentation sets him above the rest.

Frydenberg has certainly been tested by the pandemic and the fear of a global depression. The government’s overall economic response has been mostly well timed, targeted and effective. The better than expected economic recovery is a testament to this. This will be highlighted in Frydenberg’s budget speech.

But just as this column was tough on Hockey and Morrison, and also Labor Treasurer Wayne Swan, for shirking the difficult decisions necessary to curb spending rather than rely on unforeseen revenues and tax increases to improve the budget bottom line, so we must be on Frydenberg.

There has been a snapback and a V-shaped recovery, even though many of the government’s opponents and critics thought this was more an exercise in political marketing than a serious economic forecast. Senior Labor figures thought Australia would be in a deep recession by now. Their criticisms of the economic response to the pandemic look comical in hindsight.

This budget gives Labor little room to move. With further tax relief for low-and-middle-income earners and a pledge to drive unemployment below 4 per cent by investing more in training and expanding child care subsidies, along with new funding for mental health and disability services, Labor is largely reduced to saying how they would do things differently only at the margins.

Anthony Albanese and Jim Chalmers have not laid out a clear and compelling alternative economic strategy. Maybe it will come on Thursday night when Albanese delivers Labor’s budget reply. But so far there has been no overarching vision that articulates a significantly different approach to budget management. Their response, as always, is overly critical and technocratic.

This is likely to be the last budget before an election. Morrison has ruled out an early election in the second-half of this year. But the list of prime ministers who have changed their minds on early elections is long — almost all of them since Robert Menzies have gone to the polls early. What governs election timing is whether they think they can win rather than fidelity to a three-year term.

This budget looks and feels like an election budget. There is no tough medicine for voters. No reach for the mantle of budget responsibility and fiscal prudence. No, that is too difficult. The economy is thriving and the government wants it to continue. There are winners aplenty in tonight’s budget. And that means an early election is around the corner.