Turnbull’s budget turnaround
One of Malcolm Turnbull’s inner sanctum was upbeat as journalists pored over the details of this week’s budget. “Labor’s got nowhere to go,” he said. Judging from his demeanour in the Parliament House lock-up, Treasurer Scott Morrison shared this view. Or, more accurately, hopes this view was shared by his colleagues and, most importantly, the voters in coming weeks’ opinion polls.
Make no mistake: Morrison’s fate and his prime minister’s hinge on just how well received is their spectacular political pirouette. The ranks of conservative economists and commentators infesting the media could hardly contain their indignation at a Liberal government junking more than a decade of debt-and-deficit demonising.
But Turnbull was sick of seeing his government’s standing plummet, in no small part because of the perception and reality that he was a captive of his predecessor’s hardline prescriptions. “We tried it for three years and it was clearly not working,” was the explanation from one of the prime minister’s closest advisers. Senior cabinet minister Christopher Pyne is delighted that the government is finally showing political nous. He told Ten’s The Project: “It’s a Howard-era budget.”
Another explanation for burying the assumptions behind the political fiasco of the 2014 budget was given by Morrison at his National Press Club address: “Australians want the politicians they elect to get things done, to get things done for them.” In a clear message to those still clinging to former prime minister Tony Abbott’s take-no-prisoners approach to governing, he continued, “To do that we have to meet in the middle.”
Meeting in the middle is one way to describe the horsetrading in a senate where the government is in a minority of 12. This is where Morrison’s clearest defiance of the ideologues holding the Coalition to ransom was articulated. “Many of us have to move from positions we’ve been holding previously,” he said. “We have to, otherwise we run around the building making excuses as to why nothing has happened. That won’t cut it in this new reality of Australian politics.”
This attitude enabled the government to steer $25 billion worth of spending cuts through the senate since the election, even though many were heavily amended or softened. The final nail in the coffin of the Abbott–Hockey project was getting rid of the $13 billion of so-called zombie measures. The senate has refused to pass them for three years.
One Liberal MP describes the new approach as “ruthless pragmatism”. But there is no admission the old measures were flawed or too nasty. Morrison still defends one of the most contentious: the withholding of the dole from teenagers. He says it was cruel for teenagers to be faced with going straight onto unemployment benefits after leaving school – a strange defence for denying support for some of the poorest and most vulnerable. Even though the waiting period was cut from six months to four weeks, the senate would not wear it. Labor says it shows this leopard has definitely not changed its spots.
A quick consensus built up in the commentariat that this budget was Labor lite: big taxing and big spending, with heroic assumptions on when it all would be repaired. Like two of his predecessors as treasurer, Morrison took refuge in the fourth year of the forward estimates to forecast what looks like a miraculous return to surplus. It eluded both Wayne Swan and Joe Hockey.
Of course, we all know that the numbers in budgets are best estimates or even convenient guesstimates. Labor’s Chris Bowen is now attracted to bolstering the credibility of the forecasts and projections by getting the independent Parliamentary Budget Office rather than the Treasury to do them. It’s the practice in Washington and Westminster. Morrison is not so keen.
Labor had a surprise ally querying the budget’s credibility in Sydney shock jock Alan Jones. Jones told Turnbull he didn’t accept the forecasts and he had done his homework. In 2014-15, Treasury said the deficit would be $29.8 billion and it finished up at $37 billion. He homed in on the fact the treasurer has raised the debt ceiling to $600 billion while the ceiling under Labor’s Kevin Rudd was $75 billion. He reminded Turnbull that the Liberals belted Rudd over the head for that. Ignoring Morrison’s good debt/bad debt reset of the argument, Jones said “the average annual increase in debt under Labor was $36 billion. Under the Coalition it is $60 billion.” Then came the cruncher: “How do you stand up in the marketplace and say we are better economic managers than the other mob?”
Even though the two men sued for peace last year and Turnbull agreed to drop his boycott of the broadcaster’s show on Radio 2GB, Jones showed scant gratitude. Turnbull probably had an inkling of what was to come. The TV pool camera was kicked out of the studio before the interview was conducted.
Bill Shorten bristles at the characterisation of the budget as a steal from Labor. It’s complete rubbish, he says. “A Labor budget wouldn’t have given millionaires last night a $16,400 tax cut. A Labor budget wouldn’t give the largest companies in Australia and multinationals a tax cut. And Labor doesn’t believe in just hiking up the cost of living.” In his budget reply, he promised to do everything he could to stop the abolition of the deficit levy. He says it gives the wealthiest Australians, such as the prime minister, a tax cut while every other working Australian faces a tax hike.
Turnbull and Morrison defend allowing Joe Hockey’s 2 per cent budget repair deficit levy for incomes above $180,000 to expire in July by saying it doesn’t earn enough revenue. It’s garnered $3.1 billion over four years; the Medicare levy hike will bag $8 billion in just over two. Wealthier Australians, Turnbull says, will pay more because their incomes are higher.
The government is counting on favourably linking the impost with funding the National Disability Insurance Scheme, especially as Turnbull and his colleagues never tire of accusing Labor of failing to fully pay for it. Former Labor treasurer Wayne Swan angrily denies the charge, however, and points to the 2013 budget papers.
Those papers say the 0.5 per cent Medicare levy increase imposed was to fund the NDIS. Swan says the latest hike is nothing but a cash grab hiding behind the disabled. He says that levy went into an NDIS fund that hasn’t been spent yet.
Maybe so, but it is a complete retreat from Morrison’s insistence when he first became treasurer that the budget had a spending problem not a revenue one. His acceptance of the need for tax rises, such as his new $6 billion bank tax to run government services demanded by voters, is a welcome reality check.
Symptomatic of the government’s confidence about the community-wide support for the NDIS is Morrison’s holding back the tax rise until 2019 “when the bills begin rolling in”. That is a scheduled election year. But maybe he plans or hopes to deliver a tax cut as well, funded by bracket creep. After all, that’s the year when wages are forecast to outstrip inflation. Or maybe, again, this budget is not about 2019 but about surviving 2017.
All budgets have a political context. This one is about the survival of the prime minister and the treasurer. The deputy Liberal leader, Julie Bishop, warned the party room this week that the polls wouldn’t shift for a couple of months – “they never do”. That had some wondering if this was a timetable for Turnbull to demonstrate he had made the Liberals competitive again. It leaves open the question, What then?
Unfortunately for Turnbull, because he followed the precedent of Julia Gillard and Kevin Rudd in dispatching a prime minister, he can’t rule out being asked to quit voluntarily or even being rolled. While some dismiss the prospect of a return to Abbott, his allies, such as former ministers Kevin Andrews or Eric Abetz, don’t see it that way.
Andrews and Abbott made their opposition to Turnbull’s embrace of the Gonski education funding reforms crystal clear in the party room. Andrews worried some by saying he couldn’t support the reforms as they stand. His concerns are shared by others, and if one or two abstained or crossed the floor the Turnbull game would be over.
While Education Minister Simon Birmingham was effusively praised for the reforms, he was urged to start talking to the Catholics again. The opposition of the Catholic bishops is a real worry. It has angered many Liberals, who privately accuse the church of misrepresenting the generous deal Birmingham says they are getting.
Birmingham and Turnbull might have to swallow hard and also steal Labor’s willingness to do a special deal for the Catholic sector, with its nearly one million students and their voting parents.
At the end of this week, it looks more and more like the prime minister is budgeting for time.
This article was first published in the print edition of The Saturday Paper on May 13, 2017 as "A fate worse than debt". Subscribe here.