Tony Abbott has announced that a Coalition government will not return Australia to surplus until at least 2017, the same year as currently forecast by the government, despite the Opposition Leader’s previous claims that he would produce a “better bottom line” than Labor.
The announcement was one of the few concrete measures in the weekend’s Coalition campaign launch in Brisbane, where Queensland Premier Campbell Newman, deputy Liberal leader Julie Bishop, Nationals leader Warren Truss and Abbott’s daughters Frances and Bridget spoke before Abbott addressed the party faithful.
Abbott’s speech, delivered in an effective performance, centred on the familiar themes of the need to throw an incompetent Labor government out and featured few new policy announcements?—?Truss had earlier announced a commitment to spend hundreds of millions of dollars on bridges in regional areas; Abbott himself announced a new middle-class welfare measure, revealing the Coalition would direct $100 million to self-funded retirees via the Commonwealth Seniors Health Card income threshold, which will be indexed to enable more self-funded retirees to retain taxpayer assistance despite generous retirement incomes. He also announced a major $200 million investment in additional dementia research and an $80 million loan program for apprentices.
However, it was a set of commitments Abbott made in relation to fiscal policy that goes some way to clarifying the Coalition’s budget approach.
According to Labor’s pre-campaign economic statement and the Pre-Election Economic and Fiscal Outlook from Treasury and the Department of Finance, the Commonwealth will return to surplus in 2016-17. After claiming the Coalition would get rid of Labor’s waste?—?“big”, “small” and “ridiculous”, Abbott announced by the end of his first term his government would be “on track to a believable surplus”. At best, this would be a surplus in 2016-17, the same year as Labor, or later.
This is despite Abbott committing to producing a “better bottom line” than Labor before and during the campaign.
Abbott’s other fiscal commitments were directed at the year 2023, when he said the Coalition would have a surplus of 1% of GDP and defence spending of 2% of GDP (roughly around $40 billion in nominal terms, compared to $26 billion now). Abbott also committed that the size of government would be smaller each year, although he didn’t specify whether this related to expenditure or taxation.
If it relates to taxation, it will mean greater spending cuts in order to achieve a surplus?—?tax as a proportion of GDP is forecast to increase from 22.2% (the highest it has been since the last Howard government budget) this year to 23.6% in 2016-17. A quick calculation suggests the Coalition will need to find another $23.5 billion in spending cuts over the forward estimates if it is to reduce tax revenue each year by 0.1% of GDP and still reach Labor’s projected surplus.
If Abbott was referring to reducing the size of expenditure each year, that’s simple: Labor’s spending outlined in the economic statement already declines from 25.3% of GDP to 24.4% of GDP by 2016-17 in Treasury projections anyway. This seems to be more what Abbott meant.
While Abbott’s rhetoric on the budget now clearly doesn’t match his actual policy, that’s mere politics: what’s important is that Abbott has committed the Coalition to no more stringent a fiscal policy than Labor, which is a good outcome for an economy that is below-par even with interest rates at export lows. While the Coalition continues to talk the talk of the fiscal disciplinarians, it’s walking the same walk as Labor on returning to surplus and sensibly ignoring the blandishments of many on the Right who want to see austerity-style cuts and a punitive slash-and-burn fiscal policy.
That and the fact that they even found a little extra to porkbarrel the regions and throw some middle-class welfare at the Liberals’ beloved self-funded retirees, who make up a huge proportion of the Liberal Party base, shows that Abbott’s “budget emergency” of May simply doesn’t exist. Of course, they always knew it didn’t exist.
It would have been downright disastrous for the economy if they had proposed to act as though their rhetoric in any way reflected reality.
This article first appeared on Crikey.