Budget repair on hold with an election to win

You have to wonder how the so-called fiscal conservatives within the Coalition’s ranks feel about the Treasurer’s latest pronouncement.

Treasurer Josh Frydenberg arrives to speak during an address to the Australian Chamber of Commerce and Industry at Parliament House on Thursday.

You have to wonder how the so-called fiscal conservatives within the Coalition’s ranks feel about the Treasurer’s latest pronouncement: no return to austerity until the unemployment rate has a four in front of it.

In other words, short of achieving full employment we won’t see this conservative government even get started on budget repair, instead resting on its laurels that it handed down a smaller-than-usual deficit before the pandemic struck. Mission complete.

Put to one side the record deficits, debt, low wages growth and inadequate productivity growth all around us. Why? Because there is an election to win. And Australia is doing better on the economic front than most like-for-like nations. Cuts to the budget are never popular, so don’t expect a populist PM to sign off on budget austerity after the last few months Scott Morrison has endured as he begins campaigning for his re-election. Especially when, in fairness, economists near-universally agree that now isn’t the time to dry up government spending and move taxes higher.

Which means debt will continue to grow, as does the role of government. We will have to have the conversation eventually about what the public wants from its government. A more interventionist government asked to do more needs the revenue streams to fulfil such obligations. That means higher taxes, or at least tax reform to make how we tax more efficient.

It is a philosophical debate largely beyond the political class, certainly beyond much of the commentariat, and disconnected to the daily struggle mainstream Australians go through simply to live their lives.

Josh Frydenberg is relaxed about ballooning debt because interest rates are so low. That’s not unreasonable in the here and now. But what happens when that changes? Debt repayments skyrocket. But that won’t be this government’s problem because the debt being purchased to fund profligate spending won’t mature for decades, as articulated in Frydenberg’s pre-budget speech on Thursday.

Such long-term settings kick the fiscal can far enough down the road that future generations can worry about the consequences, not us. Or at least, not us right now. And besides, the Reserve Bank is printing money, and buying much of the debt with it, so the facade of fiscal responsibility can be maintained in the face of record blowouts.

It is true that growing your way out of debt is a meaningful (and real) pathway to future prosperity. That means considering debt as a percentage of GDP rather than on the gross or net raw numbers. Developing countries the world over have long reduced debt as a percentage of GDP, all the while watching the raw figures grow. Paul Keating must have been right: growing the pie works. Now lets hear a Liberal Treasurer admit that.

To be sure, Morrison has never really been a fiscal conservative. Nor is Frydenberg, in the sense that he’s a pragmatist who wants to be PM one day. He’s in the same difficult position as Keating: likely to be on the wrong side of the political cycle when it’s his time.

Which is why Keating struck when he did, after Bob Hawke dishonoured their Kirribilli handover pact, ousting Hawke in a partyroom coup, going on to win an unexpected additional term at the 1993 election.

Frydenberg won’t be striking at Morrison anytime soon (or later, most likely). And winning the next election is going to be hard enough with Morrison still in charge. That leaves the Treasurer destined to take over a long-term government and needing to perform his own miracles to win re-election in 2025. Or he’ll become a first-term opposition leader after Morrison is defeated next year.

And we know how likely it is that first-term opposition leaders become prime minister. Not very.

We might be counting down to next month’s budget, but the real number-crunching going on within the Coalition right now is at an electoral level. Polling day is probably a year away, and the numbers aren’t good for the Coalition.

Even if it remains deserved favourite, remembering it is already on the brink of losing its majority.

Take a look around the country. A lost seat in WA courtesy of a redistribution coupled with difficult holds in seats like Swan and Hasluck are a reality. Throw in Christian Porter’s newly marginal seat as another tough hold. WA has long been at a high watermark for the Liberals federally, yet at state level the party now only holds two lower house seats.

Labor must like its chances of winning back one or both of Bass and Braddon in Tasmania. It has long targeted Boothby in South Australia and can now do so against a candidate rather than a sitting MP, following Nicolle Flint’s announced retirement.

Team Shorten failed to pick up Victorian seats it hoped to in 2019, the likes of which will again be on Labor’s radar. I’m talking about seats like La Trobe and Chisholm. And redistribution there hands an extra seat to the opposition.

The conservatives hold the lion’s share of seats in Queensland. Retaining so many seats when shooting for a fourth term won’t be easy. If Queensland falls it could deliver Labor enough extra seats to form government. But that is a big if. Federal Labor has long struggled in the Sunshine State, other than when Queensland’s own Kevin Rudd vanquished John Howard in 2007.

NSW is the one saving grace for our Pentecostal PM. Team Morrison hopes to not only hold the line in his home state, but prise seats like Macquarie, Parramatta and perhaps Greenway off Labor. And return Craig Kelly’s seat of Hughes to the Liberal fold; perhaps Warringah too. That’s a big ask, however. Were it to happen, Morrison would almost certainly win the election. If it doesn’t, the difficulties around the rest of the country are likely to either flip the result or cause a hung parliament. We would then have to turn our attention to who the remaining crossbench supports.

All of which is why this year’s budget, while it might not be the last one before an election, is designed with re-election in mind. Hence no austerity, more debt and winners from pillar to post when it comes to funding initiatives. With even the mere prospect of austerity ruled out until we hit full employment.

Gone are the days of fiscal conservatives ruling the roost in the Coalition, replaced by profligate politicians on all sides. How good is Australia?

Peter van Onselen is a professor of politics and public policy and the University of Western Australia and Griffith University.