Opinion
An extra $5 a week might not be much, but it’s intelligent
Peter Hartcher
Political and international editorThe federal budget’s headline tax cuts are best described as breadcrumbs.
They’re tiny, one eventually leads to another, and they’re supposed to help guide us out of the dark woods of difficulty onto the safer ground of good times. Good times for Labor, at least, which hopes that this scant offering will clinch them a second term.
Treasurer Jim Chalmers announced the cuts, which even the government describe as “modest”. Credit: Fairfax Media
How tiny? For a worker on average earnings of $79,000, the first tax cut would be $268, or the equivalent of a pay rise of one-third of one per cent. The second tax cut would be roughly twice as much. Even the government describes these as “modest”.
It could have been worse.
If the Albanese government had panicked and dipped into a magic pudding instead of a handful of breadcrumbs, it would have inflamed inflation.
If the government had served up a generous plateful of pudding, the Reserve Bank would have had to respond by tightening the monetary belt – raising interest rates. It would have been an economic and political disaster.
So the construction of the tax cuts is intelligent. The cumulative cost to the revenue is $17 billion over three years, which sounds substantial. But because the first one would take effect in 15 months, and the second to follow a year later, they put no pressure on inflation.
Besides, electoral bribes don’t save governments. John Howard couldn’t save his doomed government with deathbed splurges. Neither could Julia Gillard nor Scott Morrison.
To their dismay, these prime ministers discovered that voters are not as stupid – or as venal – as they thought.
When asked why a taxpayer shouldn’t consider the first tax cut of $5 a week to be derisory, Jim Chalmers replied that she should consider it as part of the longer-term picture.
The two tax cuts to come, plus the one that took effect last year, would deliver a cumulative total of $2190 for the worker on average earnings by 2027-28. Mark your diary for 27 months hence, then pause for a moment’s thanks.
The government is making a virtue of its incremental necessity, presenting it as “responsible economic management”.
The tax cuts are just a part of the broader federal budget. The overall picture is a budget built by a focus group. Political parties test their plans with focus groups, typically eight to 10 uncommitted voters. They sit around a table and offer their unvarnished views in return for a modest per diem and complimentary tea and biscuits.
If you look at the top priorities in this budget, you’re looking at the results of the focus groups that the Labor secretariat commissioned over recent months.
The top priorities in the order cited in the Treasurer’s budget speech are: help with cost of living; strengthening Medicare; building more homes; and spending more on education. With a postscript of making the economy “stronger”.
These are the main concerns ventilated by every focus group in recent times. That’s not to trivialise them. On the contrary. For most of the country, inflation has cut living standards.
Perhaps the former head of the Business Council, Jennifer Westacott, put it best this week.
“We just have to kind of stop and reset on the cost-of-living issues because … it is not an inconvenience, it’s a catastrophe,” as reported by The Daily Telegraph.
If workers weren’t treated respectfully, she said, “these things boil over. They end up in violence. They end up in people doing things they never thought in a million years they would do”.
We have a clear case study unfolding in the United States, which allowed middle and lower incomes to fall or stagnate for three decades.
So the budget decision to add another electricity rebate of $150 for the second part of the year, at a cost of $1.8 billion, and the tax cuts are important recognitions of lived realities for most Australians.
The new Medicare measures are another important source of support to keep universal healthcare alive.
But while focus groups are a useful way of gauging the concerns of uncommitted voters, they’re not a guide to the big responsibilities that governments must meet.
For example, the world is in its greatest realignment since the collapse of the Soviet Union brought an end to the Cold War. Australia, like many nations, is doubly exposed; it confronts Xi Jinping’s vaulting ambitions for global dominance and Donald Trump’s stunning abandonment of global commitments.
These tectonic changes might not occupy the concerns of uncommitted voters trying to pay the bills, but the Albanese government appreciates the dangers.
There are two necessary responses. Australia needs to create a more capable and independent defence force, and it needs to brace for an economic downturn.
The government claims that its pre-existing plans for defence are adequate; the opposition and defence experts, including Labor’s Kim Beazley, recognise that it’s not. In a token acknowledgment, the budget reschedules a scant $1 billion in defence spending without increasing the total planned outlay.
And the government claims fiscal responsibility, meaning that it has adequate budget room to respond to an economic crunch.
This claim is supported by the size of the deficit, but not the bigger picture of debt accumulation.
The forecast deficit for the budget year of $42 billion is equal to 1.5 per cent of GDP. This is reasonably restrained, especially in an election year.
How restrained? The Coalition ran three deficits bigger than this in a row pre-COVID-19, so they can’t be excused as pandemic responses. And the Rudd-Gillard-Rudd governments ran four in a row bigger.
But if you take account of the money allocated to off-budget sheet spending, the picture changes. These outlays, classified as investments not spending, add an extra $23 billion to the total sum that the government needs to fund with debt for this year alone with commitments to the NBN, student debt reduction and Housing Australia, among others.
The budget reveals the political calculus of a government heading into an election, not one bracing for a global tectonic shocks.
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