Is Scott Morrison’s second budget really a “Labor budget”? No, argues Ben Eltham. A pivot to the centre won’t save the Turnbull government.
After nearly two years of appeasement towards the Liberal hard right, Scott Morrison and Malcolm Turnbull have used their second budget to “reset” the government’s political position.
This was a finely calibrated budget. Morrison and Turnbull have executed a well-timed pivot to the centre, attempting to reboot the political debate and reframe expectations of a government drifting listlessly towards second-term oblivion.
The phrase used by Scott Morrison was that government is moving to “guarantee essential services”. It’s a far cry from the heady days of 2014, when Joe Hockey appointed a Commission of Audit to get rid of government services altogether.
And to pay for these essential services, the government is — wait for it — raising taxes.
Whether this is a Labor budget, or merely “Labor-lite”, it’s clear that the government has moved a long way from the mean and nasty politics of the Abbott-Hockey era. Yes, there are drug tests for welfare recipients and plenty of xenophobia directed at foreign workers. But there is nothing like the slash-and-burn assault on middle Australia that made Hockey’s first budget so toxic.
There is new spending for infrastructure, for health, and for education (although how much spending, and what shape that takes, will be fiercely debated). The banks have been slugged with a Big New Tax. There are even some gestures — though not much more than gestures — towards housing affordability.
In fiscal terms, the big news is that the government has finally admitted that there is a revenue problem, and has raised taxes. The Medicare levy has been upped from 2 to 2.5 per cent, raising a healthy $7.8 billion over two years. Bracket creep is also doing good work in the service of budget repair: despite low wages, tax receipts as a share of GDP are expected to return to their 30-year average.
On the aggregates, the budget is steady-as-she-goes. This year’s deficit came in at $37 billion, and next year the figure is forecast at $29 billion in the red. The magical surplus, for so long an article of faith amongst conservative policymakers, is forecast to appear four years from now. The deficit is slowly improving, although once again generous assumptions have been made. Miraculously, in 2020 the budget is supposed to gain a full one per cent of GDP, or $19 billion. Don’t hold your breath there.
The budget reveals some interesting things about the economy: once again, it’s stuck in second gear. Wages growth remains low. So does employment growth. Unemployment remains at 5.75 per cent. Real GDP growth is just 1.75 per cent this year, rising to a more robust 2.75 per cent next year. We’re not in a recession, but we’re also a long way from full employment.
Of course, this is not really a “Labor budget”. The huge company tax cuts are still there, after the government cut a deal to pass $24 billion worth earlier in the year. The health and education measures are small and relatively cheap. Housing affordability has been ignored. And there are yet more cuts to foreign aid, an area of policy where Australia’s contribution can only be described as shameful.
In the portfolio areas of housing, health and education which have proved so troublesome for the Coalition, there are some band aids, but certainly not major investment.
For instance, let us examine the vaunted “Gonski 2.0” package that the government has touted as “true needs-based funding”. The government boasts that 9,000 schools will receive additional funding. But the truth is that many schools will receive less than they would have under Labor’s Gonski funding envelope. In the cold reality of the budget papers, this year’s Gonski 2.0 package delivers only $1.75 billion over the forward estimates. Labor argues disadvantaged schools in the suburbs and regions will go backwards; at least one public school principal agrees.
Meanwhile, as announced, the government’s higher education changes will rip $2.7 billion out of universities funding over four years. Poorer students will bear the brunt of the ‘reforms’, with fee repayments increased and the threshold for repayments pushed down below the median wage. That’s not really a centrist budget: that’s more of the usual funding cuts and cost shifting that we’ve come to expect from the Coalition in higher education. The university cuts already look like they will be as difficult for the government as they were in 2014.
Similarly, in health, the government has gone big on the imagery, talking up a “Medicare guarantee” to ensure a supposedly “rock solid commitment” to Medicare and the Pharmaceutical Benefits Scheme.
But the substance of this commitment falls a long way short of the rhetoric. The key budget commitment is to unfreeze the Medicare rebates that have slowly alienated general practitioners. The thaw is very slow indeed: beginning only with incentive payments this year, it extends to normal consultations next year. All up, the “guarantee” is only worth $1 billion in new funding, plus $1.2 billion for new PBS listings that would likely have happened anyway. Public and preventative health has again been ignored.
In housing, the gap between rhetoric and reality is starkest. Morrison spent much of his budget speech explaining his measures on housing affordability, but when looked at carefully, they don’t amount to much. A modest investment in homelessness is of course welcome. But it will barely scratch the surface. The government’s initiative for savings accounts for first home buyers has been tried before, by Labor. It failed. The new accounts max out at $30,000, which is not enough for any kind of deposit in a capital city. If the savings accounts make any difference at all, they will actually make affordability worse, by increasing demand.
On housing, look at what Morrison hasn’t done: anything on negative gearing or capital gains tax. As expected, the Treasurer refused to pull the two main levers the federal government has available in housing policy, ruling out removing negative gearing and the capital gains tax exemption.
If housing affordability really matters as much as he says, those are the two obvious policies to repeal. The rest is just window-dressing. By keeping those two big government subsidies for housing investment, the government is signalling that it doesn’t really want to address affordability in any meaningful way.
Few voters will disapprove of the measure to tax the big banks an extra $6.2 billion over four years, or to set up a new financial complaints body to police dishonest bank executives. But analysts and economists are already warning that the levy will largely be passed on to consumers in the form of higher fees and interest margins. In an oligopoly in which four big banks control 80 per cent of the domestic market, what else would you expect? Bashing the banks is always enjoyable, but the reality is that the banks are too big to fail, even if they are not too big to tax.
In welfare, we see the usual Coalition instincts come to the fore. The neediest will be punished, especially if they are unlucky enough to suffer from substance addictions. There will be yet another crackdown on entitlements, and yet more data matching to extract dubious “savings” by shaking down innocent benefits recipients with the heavy hand of Alan Tudge’s rogue agency Centrelink. Oh, and 1,800 more jobs will go from the Department of Human Services. That can only be bad news for Centrelink phone wait times.
A word must be spared for defence spending, for here the government is truly spending big. Waterfalls of cash are descending on the generals and admirals of the Australian Defence Force, as the government accelerates its defence spending towards 2 per cent of GDP. Such is the arms race Australia has embarked on, the government now expects to get to 2 per cent by 2021, three years earlier even than Tony Abbott wanted to. The budget commits money towards yet more high-tech weaponry, such as submarines, frigates and patrol boats. All told, defence spending will rise by 6 per cent a year in real terms.
Meanwhile, on climate and the environment, the government is missing in action. The environment did not even rate a mention in Scott Morrison’s speech.
In other words, this is still a centre-right budget, even if many of the nastiest flourishes of the Hockey years have been eschewed.
Whether it will be conservative enough for the bulk of the Liberal Party remains to be seen. An early glimpse of the way the conservative right will treat the budget can be seen in the reaction of the Murdoch tabloids, which have openly attacked Morrison’s budget as a cave-in to pressure from Labor.
The government clearly hopes it can extract a much-desired “bounce” in the opinion polls from the budget. This seems unlikely. All the evidence tells us that budgets rarely provide positive impacts for unpopular governments – as Wayne Swan could remind Morrison.
There are all sorts of risks in pursuing a “Labor-lite” strategy. Deficit hawks and movement right-wingers are already horrified. Obviously, the right of the party will oppose specific measures, like the schools reforms that provide marginally less generous funding to Catholic schools. And while the big banks have few friends in the electorate, they can purchase many in the corridors of power. Tony Abbott is a marginalised and diminished figure these days, but that doesn’t mean the Liberal right can’t make life rather difficult for Morrison and Turnbull – they’ve been doing little else sine September 2015. Disunity could quickly derail any warm budget afterglow.
For upper-middle income voters, this may well be a budget to look favourably upon. There’s no real pain and there is even help for the top end with the expiration of the deficit levy for the top tax bracket. But for middle- and low-income earners, there is more hardship. Single middle-income earners in particular – say, a graduate in her late 20s on $45,000 – will be hit very hard by the dual tax rise of the Medicare increase and the university repayment hikes.
There is a bigger question that this budget asks: if you want a government that funds essential services, why bother with the Coalition? Why not simply go for the genuine article, a Labor government?
In 2011 and 2012, Wayne Swan delivered a pair of budgets that banked billions of genuine savings. Voters cared little, judging that Julia Gillard’s broken promises and Labor’s internal disunity mattered more. Coming from a government that had promised surpluses and repeatedly failed to deliver them, Swan’s spending cuts and budget savings had little impact.
The same fate may await Scott Morrison. Instead of rewarding the Coalition for its guarantees of essential services, swing voters looking to rely upon public health, buy a house and get a decent education for their kids may simply decide that they’ll vote Labor instead.
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