An unusual election budget awaits us

Thirty or so years ago, political scientists began to look at the budgets of State Governments, and they found a pattern there. The budget before the election was constructed so that the party in power could make promises that had some chance of being honoured. Once returned, the government would bring in a ‘horror’ budget, with cuts here and cuts there; expensive services would be ended, or reduced; and every effort would be made to keep costs down.

In year Two we would see a ‘steady as she goes’ budget, with some increases in salaries and wages for teachers, nurses and public servants, but otherwise no big schemes or expensive promises. Then, in year Three, with an election in sight, out would come the paintbrush, with a dam here, and a college there, and a new regional base hospital somewhere else. These were usually capital items, and it might be some years before any capital had to be provided – after all, there’d have to be some planning, some land acquisition and, of course, some community consultation.

This pattern was found to be observable in any political system with real and recurring elections, and by and large you can see it in action today. But I don’t think we are going to see it very much in the next few weeks, even with an election approaching in four and a half months. It has been plain for months that revenue is simply not coming in as planned, and Treasurer Swan is now short of some $12 billion with which to pay for things like the Gonski changes to schools and the NDIS.

The Prime Minister herself has entered the Treasurer’s domain to tell us what she thinks he might have to do, which is a tad unusual, given that Treasurers like a bit of mystique about their role. She will consider every reasonable option, and no doubt he will do so too (perhaps she has forgotten that quite recently he was voted by some group as the world’s best Treasurer).

No matter – whatever the consideration and whatever the options, the Government is in deep trouble. It has three broad options. It can cut here and tax there, and fund the promised reforms without going further into the red. Or it can pull back from the reforms in whole or in part, by delaying the start, for example, and by doing so find the needed match between revenue and expenditure. Or, finally, it can go ahead with the reforms as a whole, and spend (borrow) what is needed.

And the point is that none of these options is generally attractive. New taxes are a ‘no,no’, though as I have said in the past, we Australians are not an endangered species with respect to the incidence of tax. Both the major reforms have been announced, cheered and widely if not universally supported. And though the Treasurer has pulled back, at the beginning of the year, from his promise to bring the Budget into surplus, he cannot credibly go down the light-hearted borrowing path, especially for what are essentially recurrent items of expenditure.

In short, the Government has something of a problem. It is going into an election without the kind of budget that is characteristic of such a time. In a sense, it has already announced the goodies; it just can’t easily pay for them. And it has to announce what it is going to do  about that payment well before the election, and all eyes will be upon it.

Even worse, it was forced to make clear the revenue shortfall well before the Budget, which means that the Opposition has had to say very little in attack. How did the world’s best Treasurer get into this pickle? Alas, there are no really good answers to this question, and despite the Prime Minister’s insistence that the lower revenue figures were somehow ‘new’, they have been forecast for a long time.

I don’t have any really useful suggestions for the Prime Minister or her Treasurer. I do hope that some attempt is made to match the new programs and their cost with new savings and new forms of revenue. But, to say it again, it is really odd to see a government going into an election with a likely dose of salts for the voters, rather than with the traditional basket of goodies. But who knows? Perhaps the electorate will be so dazzled by the final outcome that it chooses to put such a Government back in power.

Unlikelier things have happened; I just can’t think of any just at the moment.

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