For all the hostility directed at Prime Minister Abbott after his government’s first budget, it’s worth remembering that that ill-fated document reflected the views of avowedly neo-liberal advisers – not Abbott himself.
This year, truer to the Democratic Labor Party influences of his early political career, he appears to have chased the neo-liberal zealots away, at least for a while.
Like his mentor John Howard, Abbott’s is at last evincing a pragmatic streak by allowing Treasurer Joe Hockey to produce a much more centrist, and sensible budget.
One chart sums up that sharp change in direction – the path back to debt-free nirvana (see below).
The narrative that goes with those dotted lines is familiar, because it’s all so recent.
In December 2013, having delayed the mid-year economic and fiscal outlook by some weeks, Hockey took to the podium to tell Australia that Labor’s spending programs were out of control, and if left unchecked would ruin us all – that’s the top line heading into debt-and-deficit hell.
Well okay, he was setting the tone for the budget he handed down the following May – a historic mistake, not only in political terms, but for the deep impact it had on consumer and business confidence, and therefore the drag it placed on an economy struggling to transition away from the mining boom years.
That budget would have seen the national debt, then equal to 14 per cent of GDP, paid off quick-smart – by 2024-05, as show by the black dotted line above.
By last December, the 2014-15 MYEFO document had to take account of several savings measures stalled in the senate – such as the ‘GP tax’, drastic welfare cutbacks, and changes to university funding (costs that produce the solid grey line above).
But finally, finally, in this year’s budget Abbott and Hockey have made material changes to put the nation on a longer term return to surplus and to a reduction in the national debt.
Let’s be clear, a net federal debt that peaks at $313.4 billion (18 per cent of GDP) in 2016-17 is not good. It’s just not bad enough to justify the cuts the government tried to make last year.
This budget, necessarily, takes a few body blows.
The fiercely criticised cuts to welfare entitlements are gone, costing the budget just over $2 billion over forward estimates.
The scrapped ‘GP tax’ co-contributions plan cost the budget even more – $2.84 billion over forward estimates.
On the expenditure side, there is an additional $3.5 billion in additional funding for childcare support over five years – a productivity enhancing measure if it translates into a higher participation rate, especially among female workers.
And the government’s asset-recycling infrastructure spending, and a $5.5 billion stimulatory ‘Jobs and small business’ package both keep the country on a high-taxing, high-spending path, but should both create thousands more jobs.
That’s an important point. The government has said many times that it wants to limit tax receipts to 23.9 per cent of GDP – and yet the latest round of projections are for 24 per cent next financial year, and 24.2, 24.7 and 25.2 per cent in the following three years.
And on the expenditure side, though it will blame Labor for setting expensive programs rolling, the next four years will see spending at 25.9, 25.5, 25.3 and 25.3 per cent of GDP respectively. To put that in context, the Howard government spent at those levels over the four fiscal years 2000-01 through to 2003-04 – but at a time when revenue was even higher as a percentage of GDP.
Put all these things together – reversals of welfare and health cuts, stimulus spending on infrastructure and small business, more childcare support, and a decision to allow the national debt to sit on the books for a lot longer – and this looks a lot like the kind of budget Labor would be handing down if it hadn’t been booted out of power.
Economic pragmatism so often belongs to neither left or right, but to the centre and that is where this budget appears to be taking us.