Surplus could go up in smoke
WHEN the Morrison Government went to the polls last year, it carried among its policies an iron-clad promise to return the Budget to surplus. “The Morrison Government will deliver a budget surplus this coming year and every year over the forward estimates and the medium term,’’ it stated, unequivocally.
It would be the first surplus handed down in 12 years. The voters returned the Coalition to power. But after months of declaring the surplus in the upcoming Budget “non-negotiable’’, the government is now considering the possibility there won’t be a surplus at all.
Treasurer Josh Frydenberg and Prime Minister Scott Morrison have declined over the past fortnight to guarantee a surplus in the May 12 Budget. Indeed, at the height of the bushfire emergency on January 6, Morrison said the “surplus is of no focus to me”.
Instead, the prime minister said the government’s focus was on bushfire recovery, with an initial outlay of $2 billion, which is likely to end up at double that or more when the summer crisis eases.
Political types will be thinking about how the public might react to the surplus promise potentially being junked. Would they forgive the government, and think it understandable, given that 29 people have died, 11 million hectares have been burnt and 2750 houses razed in the bushfires?
Or would voters feel betrayed that yet another government promised a surplus and failed to deliver?
Former Labor Treasurer Wayne Swan made a similar commitment back in 2012, when he spoke of the “four years of surpluses I announce tonight’’. But Swan never delivered a single surplus. The global financial crisis had hit in 2008. Labor had thrown everything it had at tackling the GFC, going on a spendathon building school halls, buying up old cars and installing pink batts.
Labor gets little credit for keeping Australia out of recession when the rest of the world was tanking. That is partly because the hasty spending also resulted in overpriced, sometimes unwanted school halls and spawned flyby-night pink batt companies which left many homes as firetraps. It’s also because the Coalition – under Tony Abbott, then Malcolm Turnbull and now Morrison – didn’t miss a chance to beat up on Labor for the broken promise.
That is part of the reason Frydenberg is so determined to deliver a surplus and resist an official stimulus package, despite an economy that was already stagnant before the fires.
“What the economy needs is not pink batts, cash for clunkers and cheques to dead people that Labor became notorious for, but rather a laserlike focus on the productivity agenda,’’ Frydenberg said in October.
Labor so far seems to be keeping its powder dry and has supported the bushfire spending package. But privately, some Labor sceptics think the government could be gearing up to use the fires as an excuse to abandon the surplus, which was already under strain and revised down in December to a slim $5 billion.
If the fire spending package is less than the surplus, but the surplus is junked anyway, expect Labor to go the tonk. If the surplus is on its way out, it won’t primarily be due to bushfire funding. The first $2 billion allocated will be spread across three financial years and easily absorbed in an annual budget north of $500 billion.
Where the government will be hit is if revenue drops – a near certainty given the number of communities hit by fires, smoke or lack of access, particularly in NSW. Household consumption is responsible for about 60 per cent of gross domestic product.
If fire, smoke, or a general feeling of unease stops people from discretionary spending, the GST take, which goes to the states, will also be down. If people lose jobs, they won’t be paying income tax and there will be a corresponding rise in Centrelink payments.
Despite all that, it’s not clear if the surplus will go. There were hopeful early signs of recovery in November: retail sales were up 0.9 per cent.
Construction was on the up, job numbers improved a little and there was a higher trade surplus.
The December quarter figures, to be released on March 4, will give the best indication of how the fires have affected Australia’s economic position and should make clear where it’s hi or bye to a surplus in May.
Ellen Whinnett is national politics editor.