MYEFO: Scott Morrison, Treasurer hold fire on pre-election sweeteners

Treasurer Josh Frydenberg delivers the budget update on Thursday. Picture: NCA NewsWire / Gary Ramage

The fate of the national economy and the Coalition’s re-election platform are in the hands of state premiers who can barely contain their hostility toward Canberra.

The economic plan, Josh Frydenberg says, is entirely dependent on the national plan and the premiers sticking to it. And the Coalition’s plan to stay in government depends on both.

This is a precarious political landscape for the government heading into an election year.

Thursday’s mid-year economic and budget update provided the government with the economic firepower it needs to prosecute its case as the more trusted manager of the recovery and beyond.

It showed revenues were up, job growth was stronger than expected and the economic recovery is on the run again, after being tripped up by the Delta wave.

But there is a caveat on all of it.

Treasury presented an upside picture and a downside picture.

Unsurprisingly, the upside picture was what the MYEFO forecasts were based on – a brave assumption state and territory governments will hold their nerve in the face of Covid’s fourth wave.

Under this scenario, the future looks promising, and the Coalition’s prospects remain sound.

The downside picture is somewhat bleaker: lower growth, unemployment back over 5 per cent and a return to closed borders.

“The ongoing impact of the pandemic means the economic outlook remains highly uncertain,” Treasury says.

This is Treasury acknowledging there remains considerable political uncertainty around how the premiers will respond to outbreaks. And that uncertainty hangs over the election.

MYEFO also confirmed that Scott Morrison and Frydenberg are keeping their powder dry for the March budget as the platform for the Coalition’s campaign. They have resisted any significant pre-Christmas spending sweeteners.

Thursday’s exercise was more about building the government’s foundational narrative. And as far Frydenberg is concerned, the only game in town is jobs. The Treasurer argues that MYEFO confirms the government has the right plan to create jobs and take the economy forward. He is also banking on tightness in the labour market to start pushing wages up.

This is a key vulnerability for the Coalition as it seeks to establish its authority over economic management. Labor’s alternative narrative around wage growth has bite. MYEFO forecasts shows that even with the resumption of skilled migration, take-home pay for average workers will rise by an average of $2500 a year over the next four years, although this won’t be enough to counter inflation until at least 2023.

These forecasts, coupled with tax cuts, which there are likely to be more of come next year, are what Frydenberg is hoping will inoculate the Coalition from a cost of-living counter-attack.

The updates also reveal a poison pill for the structural integrity of the budget and the capacity to return the balance sheet to a more sustainable setting following the record stimulus spending of the past two years.

Whoever wins the election, the next government will have to tackle the unsustainable spending curve the NDIS now presents.

This is not just a budget problem but a political challenge neither side appears yet to have a solution to.

The overall take-out from MYEFO? It all sounds like good news but a lot has to go right.