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Instant budget reaction

May 13th, 2008

First up, I have to say that it was good to watch a budget without having to put up with Peter Costello. Unlike Howard, I never regarded Costello as having any real substance. Even after 11 years on the job, his mastery of his portfolio was a clever barrister’s mastery of his brief, not a serious understanding of economics. Despite his nervous start in the job, and a delivery of the Budget that wasn’t notable for rhetorical flair, Swan impresses me more as knowing what he is talking about. Turning again to the Opposition for contrast, I didn’t think much of Malcolm Turnbull’s response, claiming (on a basis he never made quite clear) that this was a “high-taxing, high-spending budget”, and edging perilously close to attacking the government for closing the alco-pops tax loophole his own side had created. Clearly the Liberals are still trying to work out what they stand for.

Coming to the main point, the government did a good job in keeping its promises, even if households on incomes over $150 000 may feel picked on. The means-testing of Family Payment B was announced before the election, and the threshold could scarcely have been higher than it was.

IIRC, the Howard tax cuts, largely copied by Labor were announced in nominal terms (without allowing for inflation). If so, the higher than expected inflation bequeathed to Swan is actually something of a gift, since it means that bracket creep will pay for (and justify) much of the promised cuts. Looking at the parameter revisions, most of which have been attributed to “the mining boom” it’s hard to believe that the $12 billion or so the government has gained from this source is all due to real increases in revenue, so I think bracket creep is playing a role here.

I was disappointed, if not very surprised, that the budget savings were made up almost entirely of odds and ends, with big targets like the dependent spouse rebate and the FBT exemption for cars left pretty much untouched (the rebate was subjected to the 150K means test). That said, there was enough fat left over from the previous government that it was possible to cut $7 billion or so without causing any obvious pain. It won’t be so easy next time, and I think it would have been better to take some pain this time around. Still with a surplus of 1.8 per cent of GDP, it’s unsurprising that they didn’t feel the need to cut further.

The one big new thing in the Budget (new in magnitude, but not in concept) was the announcement of $40 billion in infrastructure funds, building on the Future Fund and the Higher Education Endowment Fund. This seems promising, especially as the money seems likely to be invested in a mixture of equity and other assets, allowing the government to keep on issuing at least some debt.

Overall, this Budget is reasonable as regards its macroeconomic settings, cautious but reasonably sensible in fiscal terms, and likely to be politically successful (first budgets usually are). But it’s left some hard decisions to be taken later and, with a three-year term, there will only be one more chance before the next election year budget.

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  1. Morgan Gibson
    May 18th, 2008 at 01:57 | #1

    The budget was a piece of inoffensive, centrist garbage intended to gain massive support from the majority of the electorate. Australia is spiralling further into mere populism with two catch-all parties representing nothing but the voters they can convince to vote for them and pretending to endorse any policy that is most likely to achieve this.

    The destitute and down-trodden, those who Labor are meant to stand for, were largely ignored (carers, pensioners and those earning under the annual average), especially in the long-term. This was no Robin Hood budget and let’s not try and pretend otherwise.

    There was also no significant movement on climate change. This is one promise Rudd certainly failed to keep! There are so many possible options to start dealing with oil dependency and climate change, but no movement is made towards them. Indeed, there is a specific, elite movement of institutionalised interests acting to prevent these ideas and products receiving public attention.

    Furthermore, why can so much be spent on soccer, but be taken on union. Even more so, how can we be spending about what we spend on soccer on aboriginal community development? It is pathetic and needs more attention.

  2. Alison Alloway
    May 18th, 2008 at 21:03 | #2

    I was shocked and disappointed that pensioners were given a bum steer in the budget. One of the key findings of the Joint Senate Inquiry into pensions, entitled “A Decent Quality of Life” tabled earlier this year, was the urgent need to raise the single rate of pension. I hope pensioner groups exert some pressure on the Government to address this issue.

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