Political Analysis of the Budget

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Treasurer Scott Morrison has made a fist from a bad hand he has been dealt in delivering his first (and unless the public back his play on July 2nd, possibly last) national budget.  With a short timeframe to prepare the budget following the 2015 change of leadership, a comparatively restrained economic position, and the inheritance of a set of spending commitments by his predecessor, the Treasurer has presented a budget free from the proliferation of “what’s in it for me” tax and transfer commitments Australian’s often see in an election-year budget.

Instead, Morrison has framed his budget around a “ten year economic plan” focused on: Tax cuts for small and medium-sized businesses as the drivers of future growth and employment; A limited set of small incentives to address issues associated with endemic youth unemployment, and; Taxation changes aimed to bring Australia into line with comparators in the OECD.

The politics underwriting today’s announcements are seen in three themes that run across the budget papers and were evident in the key budget announcements which have leaked out over the preceding weeks.

First, the budget lacks any significant surprises. Chastened by the experience of Tony Abbott and Joe Hockey in 2013, the budget itself is remarkable in that its major initiatives have all been well ventilated to date. Tax cuts, anti-avoidance measures, the so-called “Google-tax”, alterations to superannuation and tobacco taxes to pay for new expenditure, infrastructure spending, and major defence initiatives were all trickled out in the lead-up to today’s announcement.  Some areas of significant push-back have resulted in adjustments to the specifics, such as reported pressure against lowering the superannuation threshold to $180,000.

Second, the budget process has been about neutralising negatives.  Having taken changes to negative gearing off the table just before ANZAC day, the budget plugs a lot of weaknesses in the Coalitions recent history: High profile environmental issues (only) get money, such as the Great Barrier Reef; There are tax changes that support (predominantly) women’s experience of structural disadvantage in superannuation savings; The “Panama Papers” issue has been addressed through a crackdown on high wealth individuals and off-short tax minimisation by transnational corporations, and; Asylum issues are framed as now presenting an economic dividend through enabling the government to decommission domestic detention facilities.

Third, the realities of electioneering are addressed by the simple expedient of throwing infrastructure and industry development projects as areas likely to have marginal electorates in them.

But the budget has political weaknesses too. “Backed-in” (one of the Finance Ministers favourite terms of art) through an expensive public advertising campaign, there’s little of the “ideas boom” to be seen in the budget itself.  Innovative financial technology systems gets some money.  There’s a small pot of cash for people to engage in start-ups, and the budget re-references regulatory and tax incentives already announced to encourage risk taking.  But overall the budget doesn’t spend a lot of time telling us where innovation comes from beyond the general argument that small and medium businesses are more “agile” in nature.  This seems to reflect the rumours that there is not a perfect synchronicity between the Prime Minister and his Treasurer.

This lack of innovation might be explained by the other big missing piece of the budget: Skills training and higher education.  The budget papers were accompanied by a discussion paper by the Department of Education that parks the proposed reform of higher education (rejected by the Senate in 2015) into a new period of consultation.  While the Government clearly is hoping that a new “sell” of deregulation will get the public onside for a second pass at the legislation in 2017, kicking higher education and skills into the long grass leaves a core driver of innovation in effective limbo. While innovation is not driven by public institutions exclusively, the relationship between highly technical, well-funded universities in California and the development of Silicon Valley is not a co-incidence.

Deflecting a debate on negative gearing is unlikely to take issues of housing affordability and homelessness off the political agenda.  With a number of key marginal seats in Sydney, this issue is almost certain to dominate parts of the election campaign. On this issue the budget is essentially silent (though superannuation changes will incentivise some house recycling by older people), and previously allocated transfers to the States for homelessness comes to an end in 2017.

Finally, productivity. In this area the government talks a big game, but provides limited substantive attention.  With a stated target of 0.6% the Government signals they intend to grow productivity at a higher level than the period of massive microeconomic reform of the 1980s. Tax cuts to business are framed in productivity terms – that owners of small and medium enterprises will, assumedly, plough some of this largess into new technology, training and plant – but issues associated with generally increasing workforce participation beyond youth unemployment, or public sector productivity are largely absent from the document.  Of all the assumptions in the 2016-7 federal budget, this assumption seems the most heroic.

Dr Peter Chen is a Senior Lecturer in the Department of Government and International Relations at the University of Sydney.