Refining the Wedge


Some hours before Treasurer Peter Costello had risen to his feet in the House of Representatives to deliver his 12th Budget speech, Prime Minister John Howard was playing down the size of any short-term ‘Budget bounce’ for the Government in the opinion polls.

A rising chorus over the past month has repeated the message that the Budget was the major ‘set piece’ for the Coalition the event which would decisively end the Rudd honeymoon and return Australia’s political settings to ‘normal.’

The reception the Treasurer received in the House was quite flat, with the PM looking funereal and, at times, somnolent. Gone was the vigorous head nodding and supportive interjections from behind the dispatch box we’ve seen in previous years. The ‘hear hears!’ only became animated when those on the National Party benches cheered road funding and drought assistance.

Peter Costello declared the Budget an ‘investment in the future.’ But what the speech actually tried to ‘lock in’ was the future of the Coalition rather than that of the nation. As Shadow Treasurer Wayne Swan (perhaps predictably) observed, it was a ‘clever’ document.

There is some legitimate concern that additional spending measures and tax cuts in the Budget might prove to be inflationary and thus put pressure on interest rates and it could easily be argued that the real issues regarding the interaction of the welfare and tax systems weren’t addressed in order to provide ‘incentives to work.’

But no one is really pretending (least of all the Treasurer, whose speech was riddled with the typical ‘when Labor was in office’ rhetoric of Question Time) that the mission of the Budget was reformist or tied to fiscal policy concerns. Its interest lies in the Budget’s impact on politics in the short term, and what it says about the Howard Government’s priorities, and the future of the Liberal Party.

I’ve argued recently in On Line Opinion that the Government probably reached its use-by date some time in the last term. Despite the easy plaudits of the punditariat, Howard knows that he’s actually a poor campaigner. Even so, his billion-dollars-a-minute spending spree during the 2004 campaign launch was probably unnecessary, when all he needed to do to win was ensure that the ‘Mark Latham is the Labor Leader’ signs were posted outside each polling booth.

Labor’s consistent leads in the opinion polls since WorkChoices came into effect and the very high leads since Kevin Rudd became ALP Leader suggest that the electorate have been waiting for the appearance of a plausible Labor leader so they could throw out a tired government. Labor have narrowed the differences with the Coalition on many issues and using tactics refined by the Swan/Rudd partnership as early as the 1989 Goss election win in Queensland they have targeted the Government with themes and messages keenly-honed through focus groups.

The political rhetoric of the Budget and many of its spending measures are designed to counter Labor’s themes by appropriating them. But in truth, the Government’s only trump card is ‘economic management’ and this explains the contrasts drawn by Costello in last night’s speech between the current Government and the last Labor one.

There are three political errors in the Budget message. The first, and most obvious, is the omission of anything significant on climate change. Howard may well be waiting for his Task Group on Emissions Trading to report (it’s due to do so on 31 May), but the electorate knows he’s playing catch-up politics. In particular, the total failure to even address the severe impact of the drought on urban areas (preferring to go for the ‘we support the bush’ standby) will not impress voters, particularly in parched southeast Queensland where there are both many seats Labor has to win and Level Five water restrictions. The last Queensland campaign showed voters wanted immediate action, not promises of spending some time in the future.

Image thanks to Fiona Katauskas.

Traditionally, the States have been responsible for the provision of infrastructure and services except in defence (which doesn’t immediately affect many voters and the national security card is no longer the ace in the pack) and social welfare. This leads to the second political error in the Budget. The Howard Government has been constantly castigating the States for years insisting that only the Commonwealth is competent to provide infrastructure and services. But, as Queensland Premier Peter Beattie recently asked, ‘When has the Commonwealth ever been good at running anything?’ Voters have had enough experience of Centrelink and the ATO (as the streamlined tax return proposal recognises) to know that administrative competence is not the Federal Government’s strong suit.

The Commonwealth needs to move beyond symbolic announcements and into the real provision of services and infrastructure, but it’s still playing the symbolism game and in the process spending enormous amounts of taxpayers’ money to very little effect. No one really believes a bonus of $1000 for apprentices will really solve the skills crisis, just as last election’s promise of $800 for toolkits didn’t. Nor will extra technical schools make much difference not all of those promised in 2004 are actually operating. Similarly, summer schools for teachers and $700 literacy and numeracy vouchers (which have already been piloted and largely not taken up because of red tape) are not going to do much for education.

These measures make good headlines, but recent focus group research on the Queensland election conducted for The National Forum showed that voters discount symbolic announcements from governments and look for actual results. That’s one of the reasons why the Blair Government is unpopular billions of pounds of spending announced, but little measurable improvement in the experience citizens have of public services.

There was nothing substantial in the Budget to overhaul our crumbling public service infrastructure (schools and hospitals). That reflects the Government’s preference for private ‘choice.’ But although it may not be uppermost in the minds of the highly paid punditariat, effective public services are very much on the minds of that very large segment of the electorate (aspirational or not) who haven’t much capacity to exercise that ‘choice.’

That leads to the third political error being too politically clever by half. Voters have come to expect cheques in the mail at election time, and tax cuts. But there’s been little political bounce in the past because those who’ve received the really significant tax cuts largely vote for the Coalition anyway. The ‘battlers’ won’t be won back on the promise of $16 a week when they live with housing strain, increases in the price of staples that outstrip the CPI, and the reality or prospect of lower take-home pay because of WorkChoices.

Costello was chortling about the $5 billion Higher Education Endowment Fund being his idea. In part, that’s a reflection of the fact that not too many people (least of all on the Government benches) believe that he’s ever had any. It may also be an attempt to leave a legacy if this turns out to be his last Budget. But again, it’s more designed as a political wedge to stop the Labor Party from ‘raiding’ it, and to justify the Government’s billions of dollars with some public purpose.

The Endowment Fund is restricted to capital works and research institute funding. Just as Vice Chancellors at the ‘establishment’ sandstone universities have built temples to themselves on campus where tutorial sizes have
doubled or tripled we can now anticipate the construction of a number of very spiffy ‘Peter Costello Institutes.’ But Costello may have wedged himself, because there is no extra recurrent funding in the Budget for actually teaching students in the shiny new classrooms.

The announcement that restrictions on domestic full-fee-paying students will be lifted allows Melbourne University to be the trailblazer for the effective privatisation of higher education. Labor will point this out, and it’s most unlikely to be electorally popular.

The worst wedge of all is the way that the Budget is supposed to cleverly stymie Labor’s options for spending in the election campaign the real purpose of the surplus and the Education Fund. But this is also to look to the political past, not the future.

Amid all the talk of Rudd and ‘New Labor’ from the News Limited commentariat, no one seems to remember that Chancellor Gordon Brown promised to maintain Tory spending limits on public services for two years into the first term of the Blair Government. Swan has had extensive discussions with Brown, and he will certainly be aware that Brown’s promise ensured that British Labour overcame perceptions of economic irresponsibility. On ABC TV, Tony Jones and Kerry O’Brien appeared surprised when Swan promised not to spend the surplus (and implied that the Government probably will) and to fund Labor priorities by redistributing public spending.

He’s deadly serious.

Expect Labor either in Rudd’s Budget reply, or closer to the election to make this crystal clear.

Labor will effectively follow the Blair/Brown model calm the markets and economists with a pledge of absolute fiscal straightjackets and paint the incumbent Government as fiscally irresponsible. The implicit pledge to Labor supporters will be that spending will be more redistributive and more targeted to progressive priorities.

There’ll be no policy auction or Labor attempt to trump Costello’s profligate spending.

The politics of the Budget are very simple. Costello will fail to secure the Coalition’s future and thus his own will be very much threatened because this Budget looks to the past, and tries to fight the last political war.

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