Wednesday, May 12, 2010

The Boring Budget

Well, Wayne Swan promised us a boring budget, and it appears that he has delivered. Imagine that, a politician actually keeping a promise. It’s true that there were no real surprises in the federal budget. Even the triumphant announcement that the budget would return to surplus three years earlier than previously forecast was not unexpected. It has been evident for some time that last years dire forecasts of economic doom have turned out to be far too pessimistic and the economy is already recovering strongly enough to propel a dramatic increase in revenue. Of course, as our politicians are so fond of telling us, we are not entirely out of the woods yet.

The return to surplus is predicated on the return to economic growth gathering pace, not only here but around the world. Some have suggested that such an assumption may be overly optimistic, especially in the light of current events in Europe where the Greek debt crisis is yet to be completely resolved. The trillion dollar bailout plan has certainly helped, but it is too soon to say if it will be enough to prevent further economic ripples washing around the world and rocking our own economic boat, even if it is half a planet away.

The centerpiece of the budget, in terms of new revenue, is of course the proposed Resource Super Profit Tax, and that is also a source of some uncertainty. Firstly, it remains to be seen whether or not the legislation for it can pass when the opposition has already indicated that it will vote against it. Secondly, even if the government can get the legislation through, the question remains as to whether such a hefty tax grab can be sustained by the mining sector. The big mining companies say that it will discourage investment and cost jobs, and it would seem that plenty of Australians are worried that they might be right.

Of course the real trick to any budget is not that it will accurately predict outcomes over the ensuing four years, but that it will provide voters with sufficient comfort that they will be convinced to re-elect the government. In this difficult economic environment, such a task is not to be accomplished simply by bribing the electorate with big tax cuts or big spending programs. The voters of Australia are a bit more sophisticated than that and they know that now is not the time to be recklessly throwing money around without anything of substance to show for it.

That’s why Wayne Swan was aiming for a budget that would be considered to be boring, even though it contains enormously significant structural changes in the form of the Resources Super Profits Tax and the reshaping of health and hospitals funding. That’s why the Treasurer has focused on the accelerated time frame for the return to budget surplus as the headline story from the budget. And that’s also why the opposition will continue to insist that no matter how quickly the government manages to wind back the deficit it just won’t be quick enough.

The gamble for the government is that if international conditions do take a serious turn for the worse, it will make the opposition look like they were right, even though such external effects are beyond the influence of any government.

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