The Abbott government’s first budget is politically extremely radical but copybook cautious in its economics.
A few hours before its delivery, Tony Abbott told the Coalition party room that the budget reflected a view of society in which citizens were bigger and government smaller.
It’s a 'values' budget, strong on ideology. Treasurer Joe Hockey has been allowed to take an axe to the “age of entitlement” that he so wants to end.
The government has had in its sights not just the priorities of its Labor predecessors, but those of Liberal hero John Howard as well.
Many of the 'Howard battlers' will be squeezed by the toughened conditions for family tax benefits. They will be paying more for health with the new co-payment. And today’s Liberal government no longer has much truck with stay-at-home mums. “Staying at home should be a parent’s choice, but there are limits on how much support the taxpayer can give,” Hockey said.
The budget sharply defines the nature of the Abbott government, but it raises questions about the Prime Minister himself and points to the way he has changed.
The man who as health minister wanted the Commonwealth to take responsibility for hospitals is now determined to push as much of the burden of them as possible back onto the states.
Not so long ago, Abbott was seen as the cautious pragmatist. But in this budget, the government has made a raft of risky decisions that, if they hold over the long run, would have quite transformational effects on Australia.
And of course Abbott, after building a whole election campaign around the issue of trust, has been willing to break trust in a massive way -- with his temporary income tax levy on the rich and the reintroduction of fuel excise indexation -- apparently having faith that in the long run trust can play second fiddle to good performance.
Hockey highlighted the big structural reforms in the budget.
The health co-contribution is aimed to be an important message to consumers -- that no service comes free. The money is being put into a huge new medical research fund, with the goal of growing to $20 billion eventually and being the largest of its kind in the world.
The area of medical research is one where Australia has had an impressive record and the fund is a worthy project. But this area of spending has received substantial support in recent years and the initiative does seem rather out of proportion for this budget.
The reform of higher education is sweeping, with fee deregulation allowing universities to set their own charges. It’s a change that will advantage the elite universities, but will entrench a two-tier system.
The welfare shake-up is the third area of structural reform, in its nature and its scope. But it’s one that will be enacted gradually, partly because Abbott has had to hold back the tougher age pension indexation arrangements and the restricted eligibility for the pension until after his first term, in order to keep at least some promises.
The big winning areas of the budget are infrastructure and defence. One wag calls it a “boys' toys” budget. After defence took a haircut in the last Gillard budget, some spending has been brought forward: defence spending rises from 1.7 per cent of GDP in this financial year to 1.8 per cent in 2014-15.
An $11.6 bn infrastructure program will boost roads funding, which is a top priority of the Coalition government. Indeed the cynics with long memories might wonder whether road construction is the new dam building of old (when elections regularly saw a new dam promised or re-promised).
There must also be some question about whether we actually need quite as much road construction as is planned. Is this a lopsided transport policy? Should there be some more attention on public transport?
On the economic side, the budget opts for gradualism. The cuts build up in later years, which does pose substantial political hazards for the government when it faces the people in 2016. While Abbott, Hockey and their colleagues have been bold on policy, they have been very aware of not putting economic growth (which is fragile) at risk in the near term.
There is no rush to surplus. A deficit of $29.8bn in 2014-15 diminishes gradually to one of $2.8bn in 2017-18. The government has the economic trajectory going in the right direction, but it is not being foolishly ambitious.
The government says the budget is just the beginning of its broad reform task, and that is very evident. It’s a book with key chapters yet to be written. The plans for hospitals and schools, for example, will require restructuring of federal-state relations. The tax system will be in need of change, which puts the issue of the GST’s breadth and rate up in lights. There are white papers to come on federalism and tax.
The budget has the government on a political high wire, but it has only begun the long walk along it. If it looks down, it might notice there is no safety net.
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Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.