This is the 40th budget I've studied, and it's unique. The only decadal
budget we've ever had, a budget only an incoming, Coalition government
would deliver, a budget with big political costs up front, but a big
pay-off way into the future.
It's obviously the budget of a new
government, one confident it can blame its predecessors for its harsh
cuts and broken promises. But it's such a slow-burn, delayed-reward
budget that only the party that knows it's born to rule - that's
confident it will stay in office for at least a decade - would have the
front to introduce it.
The legendary Labor finance minister Peter
Walsh was proud of persuading the Hawke-Keating government to introduce
budgets showing the "forward estimates" for the three years following
the budget year. At last governments would be obliged to reveal the
longer-term consequences of their decisions.
That was fine until
the Gillard government, struggling to reconcile its big-spending
proclivities with its foolhardy promise to return the budget to surplus
in 2012-13, came up with the "fiscal bulldozer" it used to push its
ever-mounting spending commitments off to the years beyond the forward
estimates, where they couldn't be seen.
By last year's budget this
trick was wearing thin, so we saw the emergence of the antidote, the
latest attempt to keep governments honest, the 10-year "medium-term
budget projection". We've seen that projection in every budget-cycle
document since, so we must hope it's permanent.
This is the first
budget we've had built around that 10-year projection. In concept, this
budget is simple: it doesn't reform spending programs or drop many
programs. Rather, it shifts some of the cost of programs off onto
others, including the states.
It does this partly by introducing or
increasing user charges, but mainly by changing indexation arrangements.
As
one of the budget's glossy spin documents reveals, the changes to
university funding are "part of a government-wide decision to streamline
and simplify indexation for programs". That's one way to put it; I call
it changing the indexation in any way that favours the government.
A
remarkably high proportion of the measures in the budget involve
fiddling with indexation: suspending it for a few years, introducing it
where to do so would favour the budget, changing its basis where that's
what would favour the budget. You don't get this budget unless you get
its preoccupation with indexation.
Why indexation? I can imagine why. The
new treasurer arrives and the Treasury boffins sit him down to explain
the budgetary facts of life. They start by showing him the medium-term
projection, which shows that, on unchanged policies, we won't be back to
surplus even after 10 years.
There's worse. You must understand,
minister, that returning to a healthy rate of economic growth won't
reduce the deficit. Your plan to increase productivity would be great
for the economy, minister, but will do little to help the budget
balance.
Really? Why? Because higher productivity soon translates
into higher real wages. That's great for tax collections, particularly
income tax. Trouble is, it also pushes up the spending side of the
budget.
Directly or indirectly, almost all spending programs are linked to wages.
Wages
are by far the greatest component of operating costs throughout the
public sector - federal and state, education, health, even
non-government welfare organisations.
To top it off, we index pensions to wages.
Suddenly,
someone gets a bright idea. I know, we'll cut the Gordian knot by
shifting from indexing to wages to indexing to prices. With one bound,
Joe broke free. Even the huge cuts in overseas aid can be seen as a
switch from indexing to gross domestic income to indexing to prices.
The
thing about the indexation solution is that the initial savings are
small, but they compound with each year that passes. So provided you're
still in power, you clean up down the track.
Take the resumed indexing
of fuel excise: a huge political stink over a tiny tax rise, but once
that's past the revenue grows inexorably without anyone noticing.
As
well, this budget creates scope for big future savings, such as
discretionary increases in user charges. With universities' fees off the
leash, there's huge scope for further cuts in federal funding,
including pushing research costs on to students.
And anyone who
thinks the maturation of the new Medical Research Future Fund won't
prompt the feds to cut other grants for medical research is terribly
trusting. (Whoever came up with that ruse deserves the Public Service
Medal.)
One small weakness in the 10-year projection approach
(about which the Treasury secretary has warned): it's just a mechanical
projection, and assumes we'll go for 33 years without a severe
recession.
