The budget conjurer waves his magic cheque book again

The Prime Minister goes flat out all year, every year promising to spend money. Then the budget reckoning comes around.

Will wonders never cease? Economic rectitude with only a modicum of pain. With one leap Labor gets the budget back on track.

It should be back in surplus in 2012-13, three years earlier than expected, and all for just a bit of grief for people we have little sympathy for: the drug companies, tax accountants and welfare cheats.

And despite all his warnings about a no-frills budget, Wayne Swan did find room for a few sweeties: the halving of tax on bank interest and a new standard tax deduction of $500, rising to $1000.

Wow. Kevin Rudd, the great moral budgeter of our time. Or so he wants us to think.

Actually, it's an illusion. The reason last night's budget achieved such a good bottom line with so little fuss is that Rudd has spent the past three weeks announcing its major components.

To get the premiers to agree to his hospital changes he promised extra spending of $5.1 billion over five years (which last night swelled by another $2.2 billion).

That alone was enough to blow his budget off course, so to offset it he's been busy breaking promises and cutting spending. Kill off the promise to build 260 new childcare centres; scrap the home insulation scheme.

It's now clear that, as well as it having become more politically difficult, Rudd abandoned his emissions trading scheme to help solve his budgetary problems.

It helped in two ways: first, although it involved giving up revenue from the sale of emission permits, at the same time it cut government spending by more than $18 billion, thereby doing much to help achieve Swan's target of limiting the real growth in spending to 2 per cent a year.

Third, it dispensed with a fight with the mining companies to make room for a much more lucrative fight over the resources super profits tax. It replaced "a great big new tax on everything" with a great big new tax just on the big mining companies.

Last night's budget may not have been the sort of spendathon we got used to under John Howard, but that's because most of the expensive, vote-buying promises for Labor's next term were announced last week in its response to the Henry tax review: a cut in the rate of company tax, tax concessions for small business, new concessions for superannuation and a new infrastructure fund.

The new tax on miners would pay for all that and leave $3.5 billion over. Last night we learnt the tax was also paying for the lower tax on bank interest and the new standard tax deduction to make filling out tax returns much easier.

Then there was the 25 per cent rise in tobacco excise, set to raise an extra $5 billion over four years and thereby cover much of the increased healthcare spending. Last night's tightening up of the pharmaceutical benefits scheme (saving $2.5 billion over five years) will cover most of the rest.

With this, its third budget, the Rudd government's modus operandi has become clear. Rudd's first response to any problem is to reach for the cheque book. Fortunately for us, that happened to be just the right response to the global recession.

Rudd goes flat out all year, every year promising to spend money. At the same time, however, he's hugely sensitive to the opposition's charge that he's a bad economic manager who's leading us into deficits and debt.

So every year at budget time there's a reckoning, where the purse-string ministers force him to break promises and push off spending until the budget is back on track.

Rudd's decision to abandon action on climate change has prompted many to wonder what he really believes in. Now we know: the last value he clings to is fiscal conservatism. But it's a yearly struggle.