Ignoring The Deficit: Disappointingly Predictable

Is there any less edifying event in Australian politics than The Budget?

Each year the Treasurer offers a seemingly arbitrary smattering of policy adjustments and spending programs.

This year the Family Tax Benefit A has been extended. Small businesses will be able to write-off $5,000 of new car costs. Free set top boxes for pensioners. Trades apprentices get a $1,700 bonus on completion. Former prisoners of war get another $500 a fortnight.

Check them off: families, small businesses, pensioners, apprentices, Our Boys.

Some of these have obvious merit, some obviously not.

In his mind, Wayne Swan is the government’s hard man. But giveaways do not bring to mind the toughness he wants to project.

In 2010, a tough and “no frills” budget included a 50 per cent tax discount for the first $1,000 of interest earned on savings. The low income tax offset was increased to $1,500. Government superannuation top ups for people earning $37,000 or less. Small business write-offs for assets worth less than $5,000. More money for veterans. More money for renewable energy, skills, and rail. More money for elite sport.

No frills there.

In 2009, another “tough budget”: Tax concessions on super contribution reduced from $50,000 to $25,000 a year. The small business tax break on assets increased 50 per cent. First home grants boosted for another six months. Pension payment increases. Supplements for carer payment recipients. More money for pretty much everything.

In 2008, a “tough but fair budget”… anyway, you get it.

It’s a bit rich to describe a budget as tough if it includes free electronics.

Nevertheless, the budget process itself encourages uncoordinated and haphazard policymaking.

After all, the budget is not just an annual restatement of the government’s financial health. It is the centre of the policy process. It is clearly unsuited for this role. The budget is not a great frame in which to develop public policy.

Government departments submit ambit claims, ministers push hard for programs which could demonstrate they’ve achieved something, and everything gets filtered through a political mesh, packaged into “deliverables” and rolled out in leaks.

Then the Treasurer tries to teeter between generosity and hardheadedness, prepare a speech, and try to place himself at the symbolic heart of the government.

Any substantial policy reform gets quickly subsumed into the budget spectacle – one thing must be offset by another, and spending reductions become only justifications for further spending in other areas. The only purpose of savings is for more spending.

Take the government’s dignity-of-work welfare changes, which are as much about savings as they are about reform.

As Alan Kohler pointed out on Tuesday night, $21.7 billion worth of savings in this budget was matched with $18.9 billion in new spending. Cuts made while spending added; programs expanded while other programs reduced. That’s policy churn – the sort of fiddling which makes the tax code blossom and keeps accountants in business.

At its best the budget process results in incremental approaches to policy issues. At its worst, a ballooning of under-resourced and utterly ineffective programs. $34 million dollars to help manufacturers supply resource projects? This is surely too low a figure to achieve its ambitious goal, yet too high to be dismissed as trivial.

No wonder budgets marketed as tough come off as indecisive.

The pressures of budget time are not conducive to coherent policy. But on the other side, the budget spectacle – the May policy dump – has made it hard to strongly confront fiscal problems when they arise.

2011-12 is yet another budget in the expanding shadow of the global financial crisis. The decisions made by Kevin Rudd, Wayne Swan, Lindsay Tanner, and Ken Henry in a few critical months still dominate the fiscal landscape. (Julia Gillard may have been in the famous “kitchen cabinet”, but according to Lenore Taylor and David Uren in Shitstorm, she was in the outer kitchen cabinet.)

Three out of those four – Rudd, Henry, and Tanner – have now left the economic policy stage. Swan is now the sole custodian of the government’s crisis legacy, and the man who has to live with its consequences.

The Treasurer has not seriously attempted to tackle the stubbornly growing budget imbalance which resulted from his decisions nearly three years ago. Instead, he’s relied on Treasury forecasts about a possible revenue surge in the future. That surge keeps being postponed while the target to return to surplus gets closer and closer.

The government is playing chicken with the economy, hoping revenue will catch spending before the self-imposed 2013 wall.

It may – perhaps Treasury’s projections are right this time – but would you really want to bet on it?

Our economy faces the world. What happens in China, or the United States, or Europe, makes a big difference to our terms of trade, our dollar, and ultimately the government’s revenue. And the last few years have been some of the most volatile in the global economy in the last few decades.

In this environment, Wayne Swan cannot be comfortable gambling his reputation on the reliability of Treasury projections.

We could shout ourselves hoarse asking Swan to put those projections aside and to take positive measures to reduce the deficit. The Treasurer might, if he wanted to, cut spending deep and hard – a good idea whether the budget is in the red or the black. But there’s no real demand for an Australian age of bureaucratic austerity.

So the government’s reluctance to face its deficit is predictable, if disappointing.

Without the support of his crisis co-conspirators, Swan appears to be hoping the budget will just fix itself.