NATSEM BUDGET 2016: Budget Politics

NATSEM BUDGET 2016: Budget Politics

For a government to think beyond the next election is always a test of its character.

by Geoff Kitney

For a government to think beyond the next election is always a test of its character. When that election is only two months away from the day the budget is announced the temptation for political short-termism is going to be even more difficult to resist. 

Australian politics is in a pre-election period of more than usual uncertainty. A turbulent decade has followed the defeat of the four-term Howard government in 2007.  Four prime ministers have served in just nine years, more than double the attrition for the previous 21 years. Now, a federal budget is about to be caught up in the swirl of an election campaign. Budgets are always political as well as economic events but the budget to be brought down on May 3 by the Turnbull government is being formulated with the election date looming and the political climate highly charged. So what hope for economic responsibility which will kick start an election campaign?

The two budgets since the coalition was swept to power in 2013 have been seen as budgets of lost opportunity. What hope that the third and most politically risky will deliver a strategy that matches the fiscal challenge which has become more daunting than when the coalition was elected in 2013?

For a government to think beyond the next election is always a test of its character. When that election is only two months away from the day the budget is announced the temptation for political short-termism is going to be even more difficult to resist.

The medium and long term challenges for the budget are generally agreed by both sides of politics. The Coalition and Labor accept that a major fiscal repair-job remains to be done. Both sides agree that the budget needs to return to surplus and public sector debt needs to be contained.  The points of difference are about the timetable for achieving this and the policies required to bring it about.

The Coalition’s commitment at the election in September 2013 was to return the budget to surplus in its first term in office. At the end of its’ first term (and with a new prime minister) that promise has not been honored. On the latest official projections the budget will not be back in surplus until 2020-21 – a five year slippage, pushing the commitment out beyond the election after the one expected on July 2.

The issue that will decide the outcome of the July 2 election is which party the voters decide deserves their support as the best to cope with the economic challenges ahead. All the theatrics and noise of an election campaign is of secondary importance compared to this fundamental question.

It was this issue that gave the Coalition such a comprehensive victory in 2013. In Australia, voters in federal elections have always given governments a second term to prove their competence at managing the economy. This should have assured the Coalition that a second term in government is there for the taking.  But the lessons of history were doubted by Coalition MPs. In blind panic that Tony Abbott would lead them to defeat after just one term, they did what Labor did at such huge political cost and replaced him. They assumed Malcolm Turnbull would guarantee the second term that Abbott could not. But the Turnbull prime ministership has been far more problematic than anyone foresaw. The reasons for this are many and varied but the consequence has been that the Turnbull government has looked ragged and confused.

The biggest surprise – and the biggest worry for the Coalition side – is that the Prime Minister and the Treasurer have had real problems working with each other. Treasurer Scott Morrison, so assured in his previous role as commander of the fleet charged with stopping the boats, has struggled to establish himself in his new job. There is no more important relationship influencing the success of failure of a government than that of the Prime Minister and Treasurer. The best governments of modern times – Labor under Hawke and the coalition under Howard – have been those in which this relationship has been stable and projected confidence and competence. Even though Paul Keating and Peter Costello were politicians of immense personal ego and ambition, Hawke and Howard were able to set this aside because of the central importance of these relationships to the public’s perceptions of their governments as competent managers. Hawke and Howard won election after election because their governments were seen as economically competent and in control. The May 3 budget’s chief political goal will be to repair the damage that has resulted from a shaky relationship between Turnbull and Morrison.

There is little doubt that voters still have serious doubts about Labor’s economic management credentials. Even though Opposition leader Bill Shorten has struck a popular chord with his proposal for a Royal Commission into the domestic banks and has bravely taken on the issue of negative gearing and housing affordability, it won’t be difficult for the Coalition to revive voters’ bad memories of the Rudd and Gillard governments.

The clear message in this for the government is that it has no need to resort to populist gimmicks to try to revive its poll ratings ahead of the election. In fact, a budget that sets out a credible medium term strategy for fiscal consolidation, along with a program of measures that clearly defines the still fuzzy Turnbull vision for Australia is unarguably in the best interests of the government and the country. Malcolm Turnbull is said to be the brightest politician in the parliament. He then should be the last leader to underestimate the intelligence of the voters.


Geoff Kitney writes for the Financial Review on news specialising in Politics and Policy. Read more at: http://www.afr.com/geoff-kitney-j7gck#ixzz476RxicbL

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