IF SUR­PLUS IS WIPED OUT, COALI­TION COULD GO THE SAME WAY

Edge in eco­nomic man­age­ment is an ad­van­tage the PM can’t af­ford to lose

The Weekend Australian - - COMMENTARY - PETER VAN ONSELEN CON­TRIBUT­ING ED­I­TOR Peter van Onselen is a pro­fes­sor of pol­i­tics at the Uni­ver­sity of Western Aus­tralia and Grif­fith Uni­ver­sity.

The gov­ern­ment was kicked up the back­side by the prover­bial rain­bow ahead of the mid-year eco­nomic and fis­cal out­look, with im­proved eco­nomic growth out­comes boost­ing rev­enue such that a pro­jected sur­plus fi­nally ap­peared tan­gi­ble. Cer­tainly more tan­gi­ble than the mul­ti­ple bud­get sur­pluses Wayne Swan an­nounced in 2010 be­fore de­liv­er­ing mul­ti­ple record-set­ting deficits.

How­ever, good luck can run out. This week econ­o­mists at Fitch So­lu­tions pre­dicted that a global slow­down in growth might cost the gov­ern­ment its po­lit­i­cally needed sur­plus later this year, and even might re­quire greater spend­ing to help the na­tional econ­omy. Sub­se­quently, other econ­o­mists echoed the sen­ti­ments.

To im­prove its po­lit­i­cal po­si­tion, the gov­ern­ment wants to cam­paign on re­turn­ing the bud­get to sur­plus and con­tain­ing spend­ing af­ter blowouts dur­ing the La­bor years. It is the Coali­tion’s best chance of cre­at­ing a con­trast be­tween the ma­jor par­ties, even if na­tional debt has dou­bled on this gov­ern­ment’s watch.

If vot­ers fo­cus on the gov­ern­ment’s in­ter­nal di­vi­sions or the cul­tural de­cay among con­ser­va­tives in terms of lead­er­ship sta­bil­ity or rep­re­sent­ing women, the Coali­tion faces a wipe­out.

But a fo­cus that con­trasts the record of La­bor and the gov­ern­ment at man­ag­ing the bud­get — even some­thing as sim­ple as crow- ing about a re­turn to sur­plus — just may keep the Coali­tion in the elec­toral hunt.

Good pol­i­tics and good eco­nom­ics don’t al­ways come to­gether, how­ever. If the con­ser­va­tive Fitch So­lu­tions is right — re­mem­ber­ing it has been wrong be­fore — Scott Mor­ri­son would want to call an early elec­tion and get to the polls be­fore hav­ing to watch Josh Fry­den­berg hand down a bud­get with a worse-than-ex­pected set of num­bers.

There is no con­trast in bud­get man­age­ment if the Coali­tion hands down an­other deficit af­ter promis­ing oth­er­wise.

This gov­ern­ment can’t re­ally rush to the polls any­way, un­less it wants to act like a turkey vot­ing for an early Christ­mas. Since the change of prime min­is­ter the Coali­tion hasn’t looked even re­motely com­pet­i­tive in the polls. The most re­cent two Newspolls show it trail­ing La­bor 45-55 per cent on the two-party vote. The Prime Min­is­ter would need to see ev­i­dence of im­prove­ments over the sum­mer to gam­ble on a high­risk early elec­tion. Oth­er­wise, he needs the ex­tra time and a good bud­get to build a vi­able cam­paign around.

It also would be pass­ing strange to call a snap elec­tion hav­ing al­ready an­nounced the in­ten­tion to bring the bud­get for­ward from May to April. That was done to fa­cil­i­tate a May elec­tion with­out de­lay­ing the bud­get. To sub­se­quently go early would there­fore reek of panic, play­ing into La­bor’s hands in the process. Be­sides, the pre-elec­tion eco­nomic and fis­cal out­look would do its own up­date of MYEFO ahead of polling day, ex­pos­ing the de­te­ri­o­ra­tion in the fore­casts any­way.

And PEFO is writ­ten by the Trea­sury with­out the gov­ern­ment look­ing over its shoul­der. In other words, it is more in­de­pen­dent than the bud­get or MYEFO. Trea­sury might be in­clined to break from the tra­di­tion of the modern bu­reau­cracy and of­fer the sort of frank and fear­less ad­vice of years gone by. Even if La­bor is cyn­i­cal about the politi­ci­sa­tion of Trea­sury, es­pe­cially since Mor­ri­son and Peter Costello’s for­mer chief of staff was ap­pointed to head up the de­part­ment.

The econ­omy may need an in­jec­tion of gov­ern­ment spend­ing to help it over­come any slow­down in pri­vate sec­tor spend­ing, but the Coali­tion has built a nar­ra­tive around its low spend­ing growth since be­ing elected. To shift from that mantra could be po­lit­i­cally dam­ag­ing, es­pe­cially given that on this score the con­trast with La­bor couldn’t be greater.

Fight­ing a dif­fi­cult elec­tion cam­paign at the same time as break­ing from that ap­proach would not only be in­con­sis­tent, it could put the planned tax cuts on hold. MYEFO in­cluded $9 bil­lion set aside for what are ex­pected to be in­come tax cuts, to try to lure vot­ers back into the Coali­tion fold.

With­out such tax cuts there isn’t much on of­fer for the Coali­tion to cam­paign on, cer­tainly not with­out a con­trast in bud­get man­age­ment. All that would be left in ef­fect is a solid scare cam­paign on ev­ery­thing from en­ergy prices to hous­ing pol­icy. But at this point in the elec­toral cy­cle such shout­ing from a gov­ern­ment in trou­ble prob­a­bly be­comes lit­tle more than white noise.

To not use the $9bn set aside for tax cuts for spend­ing in­stead, if the econ­omy starts to sag, leaves only two op­tions: don’t spend and risk re­ces­sion­ary con­se­quences, or spend from else­where in the bud­get, putting the much vaunted sur­plus for 2019-20 at risk.

While the gov­ern­ment would ar­gue in­come tax cuts — putting more money in peo­ple’s pock­ets — will have its own stim­u­la­tory ef­fect, the speed of the in­jec­tion is in­cre­men­tal and un­tar­geted. And in the cur­rent eco­nomic cli­mate peo­ple might be in­clined to use the ex­tra money to pay down per­sonal debt or cre­ate sav­ings. While both rep­re­sent good per­sonal fi­nan­cial de­ci­sions, they don’t help stim­u­late a sag­ging na­tional econ­omy.

The gov­ern­ment is des­per­ate to fight the next elec­tion on eco­nomic man­age­ment, be­liev­ing that it has a sig­nif­i­cant edge over La­bor on such is­sues. Polls do show that vot­ers be­lieve the Coali­tion is a bet­ter eco­nomic man­ager, whether or not such per­cep­tions are based on re­al­ity. And La­bor has pol­icy bag­gage, po­lit­i­cally speak­ing, such as the neg­a­tive gear­ing re­forms and cap­i­tal gains tax in­creases, which seem badly timed in the con­text of the on­go­ing na­tion­wide hous­ing down­turn.

To ef­fec­tively ex­ploit La­bor’s po­lit­i­cal weak­nesses at­tached to its eco­nomic pol­icy scripts for the loom­ing elec­tion, the Coali­tion sim­ply must hold on to its promised sur­plus. With­out that, it loses the cred­i­bil­ity needed to at­tack La­bor and for its mes­sage to be heeded. It al­ready may be miss­ing, cour­tesy of all the in­ter­nal di­vi­sions. But there is at least a chance of pros­e­cut­ing such a case if the sur­plus is re­tained.

It’s much eas­ier to re­tain cred­i­bil­ity than to win it back, par­tic­u­larly at this late stage. If the sur­plus be­comes a deficit, the Coali­tion risks los­ing size­able amounts of eco­nomic cred­i­bil­ity. It risks do­ing to it­self what Swan did when he fore­cast all those sur­pluses with­out de­liv­er­ing them. It ceased to mat­ter that Swan steered a course through the global fi­nan­cial cri­sis and went on to be ad­judged the world’s best trea­surer. Back home he was just the guy who said one thing, only to de­liver some­thing en­tirely dif­fer­ent.

Which is why it’s al­ways bet­ter to un­der-prom­ise and over-de­liver, rather than do things the other way around.

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