Scott Morrison’s ‘zombie’ budget cuts
Crystal balls are always dangerous. In fact all futurology is. With that in mind, though, we can still fairly safely assume that the Turnbull government will limp into 2017 having managed to survive 2016.
Not that the prime minister sees it exactly that way. In Adelaide earlier in the week, as he signed on to a $50 billion submarine contract, he proudly proclaimed that he has demonstrated that his scarcely re-elected government can and has made the 45th parliament work. He was particularly proud of getting his two union-busting bills through the senate and noted that $21 billion worth of savings have been chalked up since the election. It was his first public appearance since his treasurer unveiled the midyear budget update the day before.
And that’s as good a place as any to, as Scott Morrison put it, “clear any fog of unreality”. The unreality the treasurer was referring to was “the scale of the fiscal challenges we face as a nation”. But rather than clear the fog, he filled the room with it. Somehow Morrison was making a better fist of budget repair than his Labor predecessors – the fact there is $95 billion worth of red ink over the next four years and a “projected” not “promised” gossamer-thin surplus after that did not seem to matter.
The numbers are in fact worse than when Morrison and the Liberals in opposition railed against “debt and deficit disasters” and a “budget emergency”. Economist and former Liberal leader John Hewson says the update reveals an economy much flatter than the government is admitting. And he says the treasurer has failed to identify “a deliverable path to surplus”.
Much of the scene-setting rhetoric for the Mid-Year Economic and Fiscal Outlook was to blame Labor for its profligate spending, creating a mess that was proving hard to clean up. But the fact is much of the mess was created in the first Abbott–Hockey budget. That was supposed to be the necessary medicine to cure the ailing patient. In reality, it was a massive redistribution of wealth to the government’s mates in the mining and energy sectors. The scrapping of the carbon and mining taxes denied the budget billions of revenue.
The same blinkered thinking is also denying Morrison and Turnbull $80 billion to their bottom line – something the Labor Party and others are hammering. The 10-year $50 billion corporate tax cut with its treasury-modelled 0.1 per cent improvement to growth in two decades is the prime culprit. There is a further $30 billion on offer by checking negative gearing and capital gains tax.
And, like the 2014 budget, the political sell is vulnerable to lethal attack. We saw that from the shadow treasurer on the ABC’s 7.30. Chris Bowen said, “We don’t believe that a $50 billion corporate tax cut is justified when the government is lecturing people that they have to wait for their Newstart or that people should work ’til they’re 70 before they can get the pension.” He pointed out that such a move would give Australia the highest pension retirement age in the world. Again, the most vulnerable are being asked to share more of the burden than multinational corporates, many of whom make tax minimisation an art form.
But the government makes it clear it will again be bowling up these so-called “zombie measures” – the walking dead policies left over from the Coalition’s first fiscal foray. Included in the grab bag are cuts to health and education. It won’t only be Labor holding the line against passing them. The Greens, the Nick Xenophon Team and Derryn Hinch are all unmoved by claims the government’s way is the only way.
That’s why next year’s May budget will be particularly crucial to Australia retaining its triple-A credit rating. The three international agencies are biding their time to see if Morrison can do better reining in the deficit. Standard and Poor’s – the most bearish of them – is pessimistic he can credibly deliver without more being done on the revenue side. Moody’s is already sceptical about the assumptions and believes the deficits in the forward estimates will be worse than forecast.
One of the biggest factors is revenue write-downs. Remember how the Liberals scoffed and accused Labor’s Wayne Swan of wearing rose-tinted glasses as he predicted a return to surplus? Well, Morrison is in the same position – $30 billion less than hoped for thanks to “softer domestic prices and wages growth”. Wages continue to barely keep pace with inflation. Lower wages and salaries means less tax to collect. When you combine this dynamic with the fact we have massive underemployment and a loss of full-time jobs, you begin to understand why the government isn’t travelling so well in voter land.
Lower wages, part-time work, higher medical bills thanks to a freeze on doctors’ rebates, and changes to pathology and diagnostic imaging don’t make for happy campers. And it is set to get worse in 2017. Later in the new year the full impact of Abbott delivering a key plank of the agenda set for him by the Institute of Public Affairs will hit. Australia’s “protected” automotive manufacturing industry will shut down; an estimated 40,000 jobs will be lost.
Victoria will be hit the hardest in sheer numbers, but the smaller state of South Australia is already reeling at the prospect. Nick Champion, the Labor MP in the Adelaide seat of Wakefield, says the Liberals’ scramble to show they care by replacing one protected industry with another – submarines and ships – will not come in time to fill the jobs gap.
He says the subsidy Australia was paying the car manufacturers amounted to $30 per head of population. In Germany it’s $80 a head. “Every car on the road is taxpayer subsidised, it’s just a question of which taxpayer.” None of this is of any consolation to those facing bleak employment prospects. But it does highlight the folly of comfortable ideologues who know the cost of everything and the value of nothing. The loss of social cohesion, skills and downstream economic benefits to service providers and retailers is immense.
All of this gives context to the ANU’s Australian Election Study, which found scary levels of distrust, betrayal, cynicism and disappointment with politicians. It has long been the case that Australians have had a sceptical view of their elected representatives. The old aphorism sums it up: “No matter who you vote for, a politician gets in.” But the laconic sense of humour behind it is disappearing.
According to the survey, Kevin Rudd was the last newly elected prime minister to enjoy a high level of popularity among voters. Turnbull came close after toppling Tony Abbott, but that was not a general election. To illustrate the point, Turnbull’s popularity has dramatically declined since the July poll.
Labor’s Bill Shorten shares the lowest individual score of any leader in the past three decades on any characteristic. Only 3.7 per cent of people found him inspiring. But there’s a sting in this tail: Abbott shared this result after the 2010 election. That was the poll Abbott nearly won, and he went on to a convincing victory three years later. In the meantime, his party regularly bested Labor in the opinion polls, as Shorten has been doing to the Coalition. According to the latest Essential poll, Labor is in a handsome 53-47 two-party preferred lead over the Coalition.
There is a widespread view in the Labor caucus that Shorten has been underestimated by his opponents and much of the commentariat. One Labor MP says his position is assured. Certainly his political skills delivered surprising results for many last July, and for much of the year he has set the political agenda. But the reality is, politics is primarily about governments rather than oppositions.
Going into 2017 the government backbench is nervously hoping Turnbull can recover his old mojo. The word has gone out that his office is functioning well and that with some notable exceptions the conservatives in his ranks realise that their fate depends on getting behind him. Although that hasn’t dampened Cory Bernardi’s threats of a split from the party. One of the new breed right-wingers, ACT Liberal senator Zed Seselja, is taking heart from Turnbull’s more aggressive campaigning style. The PM is accusing Shorten of being
a liar and says he is “not fit to be prime minister”.
Seselja is confident the Liberals’ campaign on electricity prices will begin to bite hard. But John Connor of the Climate Institute says 2017 is not 2013. A rerun of the carbon tax scare campaign is on thin ice. The thinnest is that of Australia’s business community. The institute was able to attract seven influential business associations, including power generators, to call for certainty in energy policy after a review that includes a price on a carbon market mechanism.
But perhaps the clearest indication the Turnbull government is limping rather than leaping comes from the Holy City of Jerusalem. From there, Bill Shorten spoke to Sky News about a dialogue with Israel, in which he and nine other Australian politicians were participating. Among them was Tony Abbott.
“He’s pretty upbeat, I have to say – Tony Abbott, at the moment,” Shorten said. “He’s in good spirits. I’m not sure that would reflect the demeanour of the other six government members here, though.”
Mischief from Shorten, sure; but it’s definitely not post-truth.
This article was first published in the print edition of The Saturday Paper on Dec 24, 2016 as "The talking dead". Subscribe here.