Australian Politics

Swan Delivers But Fails To Sell

By Ben Eltham

May 14, 2013

Watching Wayne Swan deliver what must surely be his final media conference as Treasurer wasn't easy. Always a nervous speaker, Swan looked even more hang-dog than normal this afternoon. His listless presentation would not have convinced many voters about Labor's economic credentials, if any are still listening.

In the person of the Treasurer, Labor harbours a key contributor to its own downfall. Budgets aren't normally joyous occasions, but one of the duties of a politician is to try to communicate the gravity and the honour of the responsibilities he or she is charged with. Today, Swan looked utterly defeated by those responsibilities.

Wayne Swan is a determined and hard-working policymaker, but as a retail politician, he's a dud. It's a real problem for this government, made worse by the fact he can't seem to learn on the job. For the politician equipped with the appropriate capabilities, today's Budget represented everything one could wish for: prudence, substance, even vision. Here were big cuts to middle-class welfare. Here was a concrete plan to pay for big-picture social reforms. Here was a message of economic good fortune, almost unique in the rich world.

Swan presented it like a death in the family. The whole atmosphere was lifeless and pre-determined. Even the journalists looked bored. There was little of the robust questioning fired at Swan in previous years. A pervasive sense of capitulation seemed to drift over the media conference. The miasma suggested nothing but a lame duck government. As the sports commentators like to say, we're in “junk time”.

And yet, if you looked past Wayne Swan to the graphs on the screen behind him, an utterly different picture emerged. Stripped of the political ennui of Labor's impending electoral doom, the bald facts presented in the bar graphs tell a story of an economy in robust health.

Australia's economy has grown by 9 per cent since the onset of the GFC; the Eurozone, meanwhile, is still contracting. Our unemployment rate was only 5.5 per cent last year, and is not expected to rise above 6 per cent. Yes, Australia is running a deficit, but it's a tiny one: at $18 billion in underlying cash terms, our deficit is only 1.1 per cent of our gross domestic product. By the time the budget returns to surplus sometime in the next few years, Australia will have a government debt of only 11 per cent of GDP, a negligible figure by any sensible judgement.

It's become a cliché to argue that Australia's economy is the envy of the developed world — but it's a cliché based in facts. Any way you look at it, ordinary Australians are doing okay under this government. Nearly a million jobs have been created. Inequality has steadied, perhaps even fallen. Standards of living have kept rising. Interest rates are at record lows.

Despite — indeed perhaps because — of this economic health, there are significant issues with Australia's revenue base. The 2013-14 Budget has finally come clean about Australia's structural deficit, by admitting that the revenue foregone since 2011 will never return.

Australia's budget is in deficit because we collect too few taxes. The problem really is on the revenue side. Spending levels under the current government remain below those of the Howard government when it left office.

Here, Wayne Swan has not been helped by overly optimistic forecasts. The scale of the Treasury's misjudgment in previous budgets can be shown by the fact that the government is recording a $60 billion write-down on forecast tax revenue out to 2015-16. That's a lot of money in anyone's language. The Budget papers rather plaintively argue that “had tax receipts stayed at the share of 2007-08, the Budget would have been in surplus from 2012-13".

Rather than chase revenue further downwards, the government has — correctly, in my opinion — resisted the austerity fetish that continues to grip so many journalists and commentators, and kept spending roughly at similar levels to last year. In doing this, Labor had to finally admit it had failed in its signature promise of returning the budget to surplus. It was left to the the Budget papers to record, rather flatly, that “a more gradual return to surplus is appropriate”.

The result is a deficit next year of around $11 billion. We don't get to surplus until 2015-16, as the government maintains its commitment to keeping tax levels below the levels it inherited from the Howard government (roughly 24 per cent of GDP). Of course, I don't think there's anything wrong with that. But Labor made the surplus a much bigger issue than it needed to, and the resulting pain has been enduring.

This Budget doesn't tackle the structural hole in revenues in any meaningful fashion. On the other hand, Labor has constrained government spending, retaining its commitment to hold real growth in federal spending below 2 per cent a year.

To do this, Labor has taken some genuinely tough decisions on spending. Significant cuts to middle class welfare have been made. By eliminating the Baby Bonus and implementing tougher means tests on family tax payments, the government saves more than $5 billion in the medium term. Budget items that have been cut that will affect Labor constituencies include higher education, carbon tax compensation, and foreign aid. Precious little new spending is promised any time soon: the government's big commitments in this Budget are all over the horizon in policies such as the Gonski schools funding reforms, which phase in over six years to 2020, and in the National Disability Insurance Scheme, which doesn't begin in earnest until 2019. There's certainly no cash splash between now and the election.

What Wayne Swan hasn't done is reform Australia's tax system to something that could sustain our current social safety net and invest in our future for the longer-term. To do that, Labor would have had to tackle some of the entrenched “tax expenditures” that leak revenue away in the tens of billions, such as capital gains tax exemptions, negative gearing for landlords, superannuation tax breaks and various tax breaks for fossil fuels. Given the firestorms Labor has run into when canvassing such reforms in recent years, perhaps that was simply too hard.  

Even so, this is a creditable effort that will stand Labor in good stead in opposition, especially if it one day rediscovers a genuine belief in social democracy. Gonski and DisabilityCare Australia remain undelivered, it is true. But the commitments have been made and the groundwork has been laid. At the very least, it lays down a marker that will make these incipient reforms that much harder for an incoming Coalition to dismantle.

I thought last year's Budget was a good one, and I think this year's Budget, shorn of the fiction of a rapid return to surplus, is an even better one. All it lacks is a valid program of tax increases that might pay for the world class public services that Australian voters demand. But economic assessments matter little for what, after all, is an intensely political document.

And politically, the 2013 Budget is a strange microcosm of the presentational problems this government constantly encounters. Clearly, progressive members of this government can feel proud of policy achievements like a carbon tax, schools funding reforms, and a national disability care scheme. Even so, Labor shuffles slowly to its demise.

As Swan reeled off long lists of his government's achievements in a mumbling drone this afternoon, the size of Labor's perception mismatch slowly dawned. It's not just that this government is incapable of communicating its reform agenda. It's that it seemed as though Wayne Swan himself didn't believe in it. Meanwhile, collectively, we voters don't want to believe either: in our own luck, or in the strength of our world-beating economy.