Federal Budget 2016: Failure is not an option for Scott Morrison

Rarely has a treasurer delivered a budget so inexorably linked to the political fortunes of the government and given a major opportunity to the opposition to showcase its alternative economic policies so close to an election.

When Scott Morrison outlines his first budget tonight, the third treasurer to present a budget since 2013, he must validate his credentials as a superior economic manager and provide a framework for the government’s re-election on July 2.

So far, Morrison has failed almost every test of credibility. He has advocated policies only to retreat shortly thereafter. He has not articulated a compelling vision for the economy. He has often been at odds with the Prime Minister on policy. And the opposition has led debate on key issues, leaving the government perennially to play catch-up.

The budget is the biggest test of Morrison’s political career. His challenge is twofold. He needs to build an economic platform for the government’s re-election while also showing he has a long-term plan for an economy in transition and for budget repair.

The Treasurer needs to take command of the economic debate, harness the authority of his office and use the opportunity of his speech on national television to offer voters an economic plan short of a full campaign policy speech.

The second task is more difficult but no less important. The research undertaken by the major parties shows that voters are anxious about the future economy. They are mindful of an economy adjusting after the mining boom, a slowdown in China and sluggish global growth.

They want to know their jobs are secure, their children will have good employment opportunities and their financial position is not undermined by these economic challenges. Retirement incomes, housing and cost of living pressures loom large in this context.

Labor has had the running on many of these issues but remains vulnerable to a scare campaign on its negative gearing policy because it challenges economic aspiration and will do little to make housing more affordable. But the Coalition has floundered on negative gearing and has not yet laid a glove on Labor.

Morrison’s other long-term challenge is budget repair. With ballooning budget deficits under his recent predecessors, the Treasurer needs to show that he has a believable plan to turn the budget from red to black. Rising indebtedness was a challenge too tough for the Rudd, Gillard and Abbott governments.

The expected deficit of about $45 billion in 2016-17 is a bipartisan legacy. Both major parties failed to curb spending when they were in government. The underlying structural budget deficit of up to 2 per cent of gross domestic product should be cause for alarm. Increasing indebtedness has raised the prospect of a credit rating downgrade. It also leaves Australia dangerously exposed in the event of another global economic downturn.

Budget surpluses were once seen as an economic virtue. The Coalition and Labor once prized fiscal prudence. Since the early 1950s, the only treasurers to deliver successive budget surpluses have been Paul Keating and Peter Costello. They did so through a combination of difficult spending cuts, asset sales and economic growth.

The major parties are today addicted to higher taxes and higher spending. It is astonishing to recall that in the mid-year economic and fiscal outlook published in December, the government estimated spending to rise to a whopping 25.9 per cent of GDP in 2015-16. Apart from the 26 per cent reached during the global financial crisis in 2009-10, no government has ever spent so much.

Labor will fight the election with the seemingly contradictory promise of huge rises in taxation across the board to meet a burgeoning list of spending initiatives while pledging to have “more savings than spending over the decade” ahead. This is a heroic undertaking and it is not yet clear how it will be achieved.

The opportunity for Morrison to seize the mantle of fiscal responsibility could not be more evident or more pressing. But it is a challenge likely to be too daunting to attempt so close to an election. While some modest tax cuts have been flagged ahead of the budget, MYEFO still projects tax receipts to rise and rise, hitting an enormous 24.8 per cent of GDP in 2018-19.

Joe Hockey was the architect of these diabolical figures. His shadow looms over the budget papers. Hockey was a terrible treasurer whose rhetoric never matched his actions and the job simply overwhelmed him. Remember his promise to deliver a budget surplus every year? When he took the plum diplomatic posting to Washington, he was a man crushed by budget failure.

Bill Shorten delivers his budget reply on Thursday night. The Opposition Leader knows this is a big opportunity and has been working on ideas for weeks. He views the speech as a curtain-raiser on the election campaign proper. He will use it to frame the choice between the government and the opposition on the economy, the budget and broader issues.

In his new book, For the Common Good, Shorten says Australians worry about “how the commonwealth’s budget can be kept sustainable” and restates his commitment to “repairing the budget bottom line”. He says Labor has identified tax and revenue savings totalling $100bn but it is not yet clear how much will be used to pay off the deficit.

When Morrison stands at the dispatch box in the House of Representatives tonight, he must find the right balance between fiscal prudence and electoral necessity. Morrison’s pre-budget messaging has been strong and we have been told not to expect an election budget. But unless he can show a credible pathway to a budget surplus that is not in Neverland, he will have failed.