Josh Frydenberg bets nation’s future, and his own, on budget 2020

When the Treasurer stands up to address the nation on Tuesday more than the country’s bottom line will be at stake.

Treasurer Josh Frydenberg in his office ahead of next week’s budget. Picture: NCA NewsWire / Gary Ramage

It’s hard to imagine a treasurer handing down a more important budget than the one Josh Frydenberg will deliver on Tuesday. Australia is in recession, national debt is at its highest, the deficit will set a record and reforms are desperately needed to ensure Australia recovers from the COVID crisis.

The delayed budget comes 18 months after what Frydenberg and Scott Morrison thought would be their most important budget, politically speaking. The 2019 budget was brought forward a month so it could accommodate the Prime Minister’s preferred election timing. It included a forecast surplus for the 2019-20 financial year, officially announced (and taken credit for) before polling day. The “back in black” mugs were produced and distributed. The campaign paraphernalia claiming credit for the nation’s first budget surplus in more than a decade was printed, talking points distributed among MPs, all in the hope of minimising defeat or securing an unlikely victory.

In hindsight, however, last year’s budget was only superficially important. To be sure, it included booby-traps for any incoming Labor government, such as tax cuts few in the Coalition’s ranks thought would be enacted. They were there to reinforce the message the Coalition was “the party of lower taxes”.

This year’s budget, also full of spin, matters for substantial reasons. Its importance won’t be fully appreciated on the evening the Treasurer stands up to deliver it. It will matter in the longer term, but does it include what the nation needs? Or is the government viewing this budget through the wrong prism, with one eye on the politics?

I’ve noted before that the Coalition is all but unbeatable at the next election. While election predictions are dangerous, politically speaking Morrison and Frydenberg can do as much or as little on the economic reform front as they like until the next election. Voters will give them the benefit of the doubt either way. Embark on big reforms and Australians will trust the Liberal Party to do so in their best interests, at least for a while. Squib reform, and the Prime Minister and his Treasurer won’t be defeated at the next election by claims from Labor that they missed their opportunity to protect Australians from the worst of the recession or to ready the country for the post-COVID world.

Getting the settings wrong eventually will see the proverbial chickens come home to roost, just not in time to affect the next election. If the budget exacerbates the worst of the recession, slowing growth in its aftermath, failing to set up Australia to take advantage of the new world order once the virus is defeated, there will be hell to pay eventually. By the time that happens Morrison may be on the way out, having already won two elections. It will affect his legacy, or perhaps how he departs from politics, but nothing more. Frydenberg, however, is ambitious and needs this budget to be a long-term success. His future is riding on it.

In other words, Frydenberg’s goals for budget 2020 are likely quite different to Morrison’s, and on Tuesday we will see who got their way. Frydenberg may have been up all hours doing the hard yards but Team Morrison has been watching over his shoulder every step, vetting what gets included and what gets discarded.

Is this budget truly Frydenberg’s? For now we can analyse only what we know. Three stand­out features include tax cuts, further adjustments to welfare payments, and how the budget does or doesn’t underpin investment in education and training.

Income tax cuts have been brought forward, but economists question whether the hole they create in the budget is worth the boost in spending they may facilitate. That’s because the cuts are disproportionately directed at wealthier Australians, who in these uncertain times are likelier to save the extra money, flattening the progressive tax system. Anyone who has lost a job won’t benefit from the cuts, at least not while they remain out of work. But large-scale income tax cuts give the Coalition’s messaging continuity.

The Coalition promised them in the previous budget and dutifully legislated them after winning the election. Now, with the economy in recession, the Coalition will claim credit for “putting people’s money back in their own hands”, as the talking points will remind the sheep on the government backbench next week.

We do know out-of-work Australians live hand to mouth, spending what they receive in benefits. Presumably, the budget will give us a better idea what the longer-term Newstart allowance will be. So far, JobSeeker and JobKeeper are being wound back based on the rhetorical line that payments can be a disincentive to people “getting back to work”.

But if the economy is sluggish and those out of work spend what little they are given, the best stimulus for growth could be elongating these more generous than usual payments. That’s why the Australian Council of Social Service has argued for more certainty (and generosity), armed with a Deloitte report showing jobs will be lost in sectors such as retail if Newstart is wound back too quickly.

In times of economic upheaval and job loss, education and training become even more important than usual as people look to re-skill for the brave new world or younger Australians more susceptible to unemployment delay searching for fewer jobs on offer, choosing to study instead.

But our institutions of higher learning are being fiscally squeezed. Many students are being asked to pay more to study, which will leave them with bigger debts when they do graduate. And there are serious question marks over exactly where the government is incentivising people to study and retrain. Are they picking the right winners for the post-COVID world? Or are they dragooning people into areas where the jobs simply won’t be?

These are important choices and budget 2020 will help us to better understand the government’s priorities.

Peter van Onselen is political editor at the Ten Network and a professor of politics and public policy at the University of Western Australia and Griffith University.