I have a piece up at the Drum, looking at how the three-word slogan approach of the Abbott government helps to explain their budget problems. Text is over the fold
Assuming the current Parliament runs its full term, the Abbott government has one more budget to deliver before facing the voters. In assessing its options, the natural approach for an economist would be to look at the government’s overall fiscal strategy, in the light of the major budget aggregates, and then to consider the political implications.
?Such an approach makes no sense in relation to the Abbott government. As Tony Abbott has repeatedly made clear, the government’s focus is on policy narratives that can be reduced to three-word slogans. It’s appropriate to assess the government’s strategy in this light; in fact, it would be unfair to do anything else.
Abbott’s current slogan, repeated whenever any question inconvenient to the government is raised is “jobs and growth”. However, a complete understanding of the government’s budget problems requires us to recall two earlier slogans “debt and deficits” and “lifters not leaners”.
Let’s start with ‘debt and deficits’. The Gillard government handed this issue to Abbott on a plate, with Treasurer Wayne Swan’s obsessive pursuit of an essentially meaningless return to budget surplus. The rhetoric surrounding this goal made it impossible for Labor to defend its successful use of deficits to stimulate the economy at the time of the Global Financial Crisis. The result was that a government that had outperformed the entire developed world in terms of economic management was presented, and presented itself, as a set of wasteful spendthrifts.
In opposition, the Coalition painted Australia’s fiscal position as one of imminent disaster, with the spectre of a Greek-style crisis just around the corner. The political strategy that informed the Abbott government’s first year in office was a familiar one, built around the well-used device of a Commission of Audit. This trick has been used by just about every newly elected LNP government in the past 25 years.
As planned, the Commission of Audit reported a looming financial disaster, which was then used, in the government’s first budget, to justify the wholesale abandonment of election promises. But this strategy went off the rails when the public, and the Senate, refused to accept a massive breach of promise from a government whose primary rationale for election was Labor’s failure to keep its own promises.
It has now become clear that the current government will be no more successful than Labor in returning the Budget to surplu. This is not really a problem, since Australian public debt levels are, as they were under Labor, exceptionally low by world standards. But the ‘debt and deficits’ phase of fiscal policy has still left the government with a ticking electoral timebomb.
The 2014-15 Budget included massive cuts to state school and hospital funding, conveniently deferred until the end of the forward estimates period. Those cuts are scheduled to take effect beginning in 2017-18, less than a year into the next Parliament. In its final budget, the Abbott government will have to decide whether to go to the voters with a promise of massive cuts in vital public services.
The government’s second slogan, popularized by Joe Hockey is ‘lifters not leaners’. This slogan has been helpfully decoded by the government’s handpicked Treasury Secretary, John Fraser, hired from that prominent group of lifters, UBS https://en.wikipedia.org/wiki/UBS. Fraser has argued for the urgency of cutting the top marginal rate of taxation.
Although Fraser has proclaimed himself a fan of the supply side economics of Arthur Laffer, he does not suggest such tax cuts will pay for themselves. Although the preference is obviously for cuts in expenditure, the government has already gone as far as it can in that direction. So, the only option is that of a shift in the tax mix, through an increase in the rate of GST or the removal of the exemption on food. This has been the unvarying position of advocates of ‘reform’ ever since the Asprey Commission report 40 years ago.
Once again, however, the narrative has been bungled. Since the government was unwilling to wear the opprobrium of advocating an increase in GST, it had to attempt to persuade the states to do so (the looming cuts in health and education funding were suppose to provide the stick, and the promise of more GST revenue the carrot). But the states obviously have nothing to gain from a deal where they wear the blame and Joe Hockey gets to announce big cuts in income tax. So, they have pushed alternative ideas like an increase in the Medicare levy, and have insisted that extra revenue go to provide funding for vitally needed services.
Finally, theres ‘jobs and growth’. This slogan might seem meaningless: a quick Google search reveals that just about every politician (actual and aspiring) in Australia has used it. In budgetary terms, however, a ‘jobs and growth’ strategy has to include measures that can be linked, with some degree of plausibility, to actual jobs and/or growth. That means either public expenditure, such as the $90 billion in defence expenditure recently announced to South Australian voters, or tax concessions, such as the accelerated investment write-off provisions announced in the last budget.
Either way, a budget premised on ‘jobs and growth’ is unlikely to do much to resolve the ‘debt and deficits’ problem, or to leave much room for handouts to the government’s preferred group of ‘lifters, not leaners’. It may be time to shift the attention away from economics altogether and dust off that hardy perennial ‘Stop the boats”.