budget 2018

Can the government spend its way to an improbable victory at the next federal election? We’re about to find out.

A big lift in tax revenue has given it over $26 billion over forward estimates, plus another $7 billion extra this year, to play with.

Did it use that windfall to bring us back to surplus and pay down debt more quickly?

Well, the improvement in the budget bottom line — $6 billion next year, $4.8 billion, $1 billion the following year – shows that the priority has been spending the windfall, not devoting it to fiscal discipline.

What’s clever about the budget is that much of the spending is both politically convenient and justified in policy terms.

The personal income tax cuts — which will cost around $13.4 billion over four years — are at the lower end of expectations, but designed to ramp up from 2022-23.

There’s a risk of the electorate regarding $10 a week as fairly useless after years of wage stagnation. Scott Morrison was at pains at his budget press conference this afternoon to insist that it “mattered”, invoking The Daily Telegraph as authority, despite the tax cut amounting to a bacon and egg roll every week.

But there aren’t too many people demanding the government hang onto the proceeds of bracket creep, and it doesn’t jar too much with the fact that the budget remains in deficit.

Measures aimed at making it easier for older Australians to remain in their own homes, and incentives for seniors to retain links to the workforce, don’t look too flash from an intergenerational perspective given older Australians are already doing very nicely from the tax system thank you, but keeping people out of aged care and encouraging workforce participation are sound measures.

The latter also complements one of the government’s signal achievements — lifting the workforce participation rate to record levels despite the ageing of the population.

There’s also substantial infrastructure spending — or at least significantly more substance than the farce of the 2017 budget, which was advertised as a major fillip to major construction but in fact saw a fall in investment.

The $1 billion urban congestion fund — although inadequate to fix on suburb’s congestion let alone our major cities’ — is an important step to further involving the Commonwealth in urban infrastructure. Hopefully, the next step is some serious action on road pricing.

There are some noticeable omissions from the largesse: the government’s enemies.

The ABC has copped an $80 million cut to its funding. There’ll be a $300 million cut to welfare via an extension of the notorious, and deeply flawed, robodebt process. Migrants will have to wait longer to access welfare. Foreign aid will be cut yet again.

The focus on the political goal of spending its way to victory seems to have meant the government has lost interest in the economy. Growth will stick at 3%, although finally it will manage that without the support of tens of billions in deficit spending (but still with record low interest rates).

Unemployment will meander along above 5% into the 2020s, as if we’ve decided to abandon the goal of getting it down further.

That makes the government’s wages growth forecasts look even sillier — one wonders if they’ve bothered reading the Reserve Bank governor’s recent warnings that wages growth, like everything else, will only return gradually. It will be 2020 before inflation returns to anywhere near the middle of the RBA’s inflation range.

It’s a wholly political budget, with the government content to leave the economy on autopilot and vacuum up extra tax revenue to try to give itself a fighting chance at the next election, whenever it is.