Budget 2018: Dodgy accounting and even dodgier politics

Political editor Dr Martin Hirst outlines what we can expect from Treasurer Scott Morrison's third Federal Budget. 

I'VE BEEN COVERING Australian politics since 1975, so pretty much nothing surprises me anymore. I’m inoculated by a healthy dose of cynicism and a sharp sense of being critical of any promises made during the annual budget cycle.

One thing I can tell you without fear of contradiction is that the federal budget is not an economic document, it is a political screed. This year this is bleedingly obvious.

The Turnbull Government is in serious trouble. It is unlikely to survive the next election on current polling numbers. The only chance Prime Minister Turnbull has to save the furniture or remain in the Lodge (where he’s warming the seat for Minister for Home Affairs Peter Dutton) is if there is some sort of Christmas miracle in the next six to 12 months.

Of course, we can’t discount the $30 million dollars-worth of advertorial that Turnbull has bought in the Murdoch media. That will be a terrific boost to the Coalition’s chances, as will the $26 million to be spent by the business lobby in this aim.

The Australian newspaper is already feverishly spinning the 2018 Budget as a highly-political document that the Government hopes will boost its chances at the next election, by appealing to the conservative base.

The Australian’s Paul Kelly is attempting to paint Turnbull and Treasurer Scott Morrison as champions of low taxes, particularly for business interests. 'The Treasurer’s Budget will bring to a zenith the battle over competing tax policies', Kelly pompously opines. Personal tax cuts in the 2018 Budget are a political feint — the real objective is the $36 billion in company tax cuts currently stalled in the Senate.

In this light, the income tax cuts proposed in this 2018 Budget should be seen for what they are: a bribe to the wavering crossbenchers in the Senate to get them to accept the business tax cuts.

However, even the pro-Coalition Kelly has to admit that the Government’s strategy is dangerous, unstable and trying to straddle too many contradictions.

The Coalition is trying to buy popularity with its decision not to increase the Medicare levy, but this decision leaves a nearly $60 million hole in funding for the National Disability Insurance Scheme (NDIS). It is people on low incomes who will foot the bill for this, erasing their tax gain in one fell swoop.

Kelly points out that giving to Peter does no more than rob Paul. In this case, it undermines the Coalition’s promise to return the budget to surplus sometime in the next five years.

Kelly writes:

'[Turnbull] must maintain the viability of the return to surplus by 2020-21, since any slippage on the goal would be disastrous.'

The trick here is, of course, to forecast the surplus out over the forward estimates, so that it looks good on paper but can also be explained away later when – not if – it fails to materialise.

But what all of Turnbull’s media and business boosters know is that his Government and most of his front bench are deeply unpopular with the Australian public. Voters are just waiting for an opportunity to throw them out.

Even without former Prime Minister Tony Abbott leading them, this bunch of tory lounge lizards is the most destructive force in Australian politics in my lifetime — and that includes living through both the Fraser and the Howard years.

As always there will be winners and losers

So, what can we expect in this week’s Budget papers?

A few things — some small tax cuts, some promises to do something with infrastructure sometime after the next election, kicking the debt can down the road from Treasurer “ScoMo” Morrison.

Anyone on a welfare payment will be a loser and anyone with a portfolio of stocks in the big business end of the share market will be a winner.

That’s the broad shape of any Coalition budget because the Coalition is the party of business. It will always protect business interests and attack the interests of working people.

So why bother with a preview?

The way that budget politics play out is that governments tend to drip feed certain Press Gallery correspondents as a reward and punishment strategy. The treasurer and the finance minister give teasing, frothy interviews to their favourite outlets, to talk up their hard work.

ScoMo even tweeted out what looked like a rough draft of his high school economics term paper to show that he was in the office over the weekend:

But this circus magic palaver also serves another purpose: it is designed to soften up the public and to road-test some ideas with time to massage them if the response is hostile. That’s why there are so many budget previews in the media in the days running up to the second Tuesday in May.

So here’s a quick take on what we know so far.

Tax breaks

Every news outlet is reporting that there will be some small income tax cuts for low and middle-income earners, but the sting is that they will be phased in over time and they will be “trivial” according to some economists. Perhaps the equivalent of the proverbial “sandwich and milkshake” tax cuts of the past.

Such tax cuts are token amounts but they give the tory-friendly media a chance to spruik a line that the Coalition cares for the battlers. A tax cut of 2% is being talked about but what does that actually mean for someone on the median wage of approximately $54,000 per year? That's about $6 per week. If we use the average wage of approximately $80,000, it is about $10 per week.

However, when we factor in rises in the cost of visits to the doctor, cuts in other benefits and the average annual rise in the cost of living which hovers around 2.3%, the income tax cut is pretty meaningless economically.

So, don’t believe the hype and remember the Liberals got caught out in 2003 when then Minister for Family and Community Services Amanda Vanstone was too honest for her own good.

So, today we’ll see a similar size cut, that the Treasurer might suggest we spend on craft beer, rather than a milkshake.

No, I’m serious. Scott Morrison is cutting the tax payable on a keg of craft beer because (he says) he is a friend of the craft-brewing industry. Yep, I guess he sees it as a big tick in the “innovation” box. I think it’s because he likes a glass of frothy IPA piss (pun intended).

The Australian Council of Social Services (ACOSS) has already (correctly) pointed out that the “sandwich and milkshake” tax cut is meaningless for most households. In a pre-budget submission to the Treasurer, ACOSS argued for a decent rise in social security payments and for $1 billion to be invested in social housing.

ACOSS CEO Dr Cassandra Goldie also hit out at the Government’s planned corporate tax cuts in an interview with The Guardian:

The ACOSS chief executive, Cassandra Goldie, said that pursuing personal and corporate tax cuts was “a big mistake ... when we’re facing major funding shortfalls in areas such as the NDIS, health, needs-based schools funding and action to reduce poverty”.

Goldie said it would be “unconscionable” to cut taxes while slashing services, warning the Government not to repeat the mistake of “handing out unfunded tax cuts in the run-up to elections” as occurred from 2003 to 2011.

We know already that the Government is giving business a big handout in the form of corporate tax cuts this year and that it believes $40 a day is enough to live on if you’re already as poor as a church mouse.

Finance Minister Mathias Cormann is also insisting that the company tax cuts will proceed. The cuts are already factored into budget planning, he says, which again shows you just how much voodoo underlines the whole process.

On Friday 27 April, Cormann rejected the notion that the company tax cuts represent a “zombie” measure in this year’s Budget:

“It’s not a zombie measure ... It’s an incredibly important measure for our future economic prosperity and for future opportunities for families to get ahead. I put my hand up to be part of a government because I want to do the right thing by Australia and by our long-term future.”

Funny but I thought that reining in debt was what this Government fervently believed in, not corporate welfare.

The "debt and deficit disaster"

The what? Yes, that’s right, the LIberals have forgotten their own scare-mongering during the last election. According to some reports, the Treasurer is going to pretend none of that ever existed and announce that the Federal Budget will be back in “surplus” before you know it.

Such grand promises are always put off into the future and rely on a bit of classical economic mumbo-jumbo called the “forward estimates”. Treasurers know that this is the equivalent of the magic money tree, but that doesn’t stop them proclaiming that economic Nirvana is just around the next difficult corner and that a bit of belt-tightening this time will see us all in the land of milk and honey sometime during the “forward estimates”.

This is how the editorially traumatised ABC carefully phrases its reporting on this issue:

Surplus

Treasurer Scott Morrison is expected to say that the budget will be back in balance in 2020–21.

A recent revenue boost means that it might have been brought forward a year, but it looks likely to be spent on income tax cuts rather than so-called budget repair.

Infrastructure

Infra who? So, there’s going to be some investments in roads, an airport and a bit of Meccano to build some railways, just in time for the whole lot to be privatised in ten years, just in time to pay for budget repair in the next set of "forward estimates".

No, just kidding; the Turnbull Government doesn’t care about budget repair. Any windfall from privatisation is likely to be used to give the corporations who buy the infrastructure a tax cut, to help them pay for the infrastructure they just bought from the Government at mates' rates.

Most of the infrastructure expenditure has already been announced and – like so much of the economic “policy” of the Turnbull Government – the actual spending doesn’t happen without all sorts of conditions being met — most of these revolve around State and Territory governments also kicking in funding.

For example, the much talked about light rail link between Melbourne’s Tullamarine airport and the CBD requires the Victorian Government to throw money into the pot too. Not small change either, something in the range of $5 billion.

Apparently, Turnbull has already told Victorian Premier Daniel Andrews he should use Victoria’s share of the profit from the sale of the Snowy Hydro Scheme to fund the much-needed rail corridor.

In Western Australia and Queensland – where the Coalition vote is well below what it needs to win crucial seats in those States – there has also been the usual amount of pork-barreling over infrastructure.

The aged

There’s a tiny piece of good news for the elderly in the budget leaks. The Government will kick in a little extra for your care in an aged care facility. The bad news is you’ll have to keep working until you’re 70 to qualify for an age pension.

There’s not much to say about this, except it sucks. Of course, you can also just go onto Newstart to be further humiliated and punished for refusing to just die at a reasonable point and not be a burden on taxpayers any longer.

A pre-election budget

No one is in any doubt that this is going to be a pre-election budget, predicated on the long-disproven myth that the conservatives are better economic managers than the Labor Party.

'The Turnbull Government is shifting itself on to a pre-election footing, declaring that next week’s budget will demonstrate the Coalition’s economic plan is working and also highlight the risks of a change to a Labor government', Katharine Murphy dutifully writes in The Guardian.

One of the most comical tropes in the “better managers” myth is ScoMo’s quasi-religious belief in the power of the magic number 23.9. Michael Pascoe has vivisected this myth brilliantly in The New Daily.

Mr Morrison has declared 23.9 to be his magic number, the One Figure to Rule Them All, the core basis of Tuesday night’s Budget to set the parameters of the nation we can be.

And he’s not alone in the 23.9 cult – Finance Minister Mathias Cormann is a signed-up member as well. All hail 23.9!

The figure 23.9 represents an artificial (that is, economically meaningless) cap that former Prime Minister John Howard is said to have imposed on the ratio of tax collections to the gross domestic product.

Real economists – as opposed to those like Morrison who believe the creation myth and the prosperity gospel – have debunked this number.

And as Michael Pascoe has written, it is just a superstition held as sacrosanct by the evangelical wing of the Liberal Party:

For rational non-believers in numerology, 23.9 is just another random arithmetical value in an infinite universe of them. In the mythology of the Liberal Party, though, it is a number made sacred because it was created by the Divine John Howard, He Who Could Do No Wrong.

Thus, the cult members believe it would be a mortal sin if the Commonwealth Government’s tax take was more than 23.9% of gross national product.

Yes, that sounds like sheer lunacy, because it is. But it’s exactly what the Government is pledging to do – base the Australian economy for the next four years on Federal tax being no more than 23.9% of GDP.

But as I’ve been pointing out, it’s not the numbers in the budget that really matter, it is Malcolm’s Turnbull record-setting losing streak in the opinion polls.

Will the smoke and mirrors of 2018 Budget night be enough to reverse this trend and set up the Fizza for an unlikely win in the next Federal election?

No doubt both Turnbull and Scott Morrison are praying that it will.

Peter Dutton may well be on his knees feverishly bargaining his soul with the Devil that it doesn’t.

You can follow political editor Dr Martin Hirst on Twitter @ethicalmartini.