The 2017 Federal Budget is make or break for Turnbull and Morrison as the vestiges of the Abbott-Hockey era and accusations of dysfunctional politics continue to undermine efforts to reboot economic confidence.
by Professor Anne Tiernan, Griffith Business School
Overview
The 2014-15 Federal Budget continues to haunt the Turnbull government like Banquo’s ghost. It has been a debilitating drain on the Prime Minister’s ability and willingness to present a coherent agenda to reboot confidence and economic growth.
Approaching its fourth year in office, the histrionic slogans that proved lethal in Opposition and that formed the core of the Abbott government’s platform — ‘debt and deficit disaster’ — have limited the Coalition’s options in many domains of policy. Turnbull government ministers (often heroic) attempts to pivot in new directions have been thwarted by the need to avoid being seen to contradict current commitments.
Nation building
Witness Treasurer Scott Morrison’s efforts over recent weeks to distinguish ‘good’ from ‘bad’ debt, as he clears the decks to focus on ‘nation-building’ capital investment aimed at boosting productivity and jobs. Hamstrung by its relentless debt mantra, the Coalition has been slow to embrace the general consensus that the Federal government should use the opportunity of historically low interest rates to reverse decades of under-investment in infrastructure. Unleashing public expenditure will take some of the pressure off monetary policy, though the Treasurer needs to assure the ratings agencies that recurrent expenditure is being wound back and that any spending is only for productive infrastructure.
Direct role
A steady stream of leaks suggests the centrepiece of the 2017 Budget will be an infrastructure plan that will see the Commonwealth assert a more direct role in investment. A dedicated infrastructure financing unit has been established in the Prime Minister’s department. Canberra will demand that state proposals for Commonwealth investment in motorways and transport projects demonstrate their potential to generate financial returns — either through user-pays arrangements or ‘value capture’. Much-vaunted plans to address housing affordability seem to have been mugged by the reality that if negative gearing is off-limits, then the Federal government has relatively few policy levers to influence overheated property markets.
Sydney Airport
Last week Malcolm Turnbull confirmed that the government will borrow between $5 to $6 billion to build, own and operate a second Sydney Airport at Badgerys Creek — creating much-needed jobs and investment in Sydney’s congested and rapidly growing outer west. Other projects mooted include the long-promised Brisbane to Melbourne inland rail freight network; and a slew of projects associated with the Cities agenda — but perhaps not for Brisbane’s Cross-River Rail project.
Senate negotiations
Cormann has spearheaded a more pragmatic approach to negotiating with the new Senate. A series of compromises secured $50m of savings measures during the last sitting week of Parliament. The Omnibus bill put to bed at least some of the ‘zombie measures’ from 2014. Others, like the proposed 20 per cent cut to university funding and fee deregulation, and the freeze on Medicare rebates that underpinned Labor’s electorally successful ‘Mediscare’, have been quietly shelved. Treasurer Scott Morrison has confirmed that $13b in proposed cuts to welfare and education from the 2014 Budget had been dropped — in an effort to stem the political damage caused by what was perceived to have been a broken election promise.
The schools-funding package that the Prime Minister dubbed ‘Gonski 2.0’ was both unexpected and audacious. Labor is livid its goal of sector blind, needs-based funding’ will be delivered by the Coalition, probably with Greens support. Complaints from the Catholic schools sector notwithstanding, this is a bold move that effectively neutralises an issue that has long proved problematic for the government. Other measures — increased spending on national security; a one-off payment to pensioners and others in receipt of income support to address cost of living pressures (notably rising power costs under a deal struck with the Nick Xenophon Team), play to areas of traditional strength.
Reforms that will provide ‘free and immediate’ mental health services, suicide prevention and transition to employment programs for military veterans are both welcome and overdue.
Toxic remains of Abbott-Hockey
Given voter disappointment with Turnbull’s performance and the omnipresent threat to his leadership from his party’s right wing, the prime minister’s sudden willingness to break with the past in the 2017 Federal Budget has electrified the commentariat. Its organising themes of — ‘fairness, security and opportunity’ — comprehensively repudiate and seek to liberate the Coalition from the toxic last vestiges of the Abbott-Hockey era. But contradictions remain.
For example, it seems fairness doesn’t extend to Australia’s young people. Expect Labor and The Greens, who have accused the government of waging ‘a War on Young People’ to focus their ire on the intergenerational inequities that are manifest in declining housing affordability, employment insecurity and rising rates of household debt that will be exacerbated by the government’s higher education reforms.
Critics remain
Dysfunctional politics have been cited by the Australian Institute of Company Directors (AICD), the Business Council of Australia (BCA), the Committee for the Economic Development of Australia (CEDA) and countless others as an existential threat to Australia’s future prosperity. Turnbull’s refusal to embrace more ambitious and fundamental reforms — to Australia’s federation; its superannuation, tax and transfer systems and to give coherence to its innovation agenda, risks continuing to frustrate his numerous critics.
This budget is ‘make or break’ for Turnbull and Morrison, who has struggled in the Treasury portfolio. Coordinating policy is a wicked challenge for governments everywhere, but it is especially complicated when a political party is as riven by conflict as the federal Coalition. For now it seems, the Prime Minister is focused on regaining the public trust shattered by his predecessor’s decisions this time four years ago.