Labor splashes out with a lesson in Howard history

THIS budget seeks to shore up the weakened defences of a government on the ropes. Deeply worried about the political damage the looming carbon tax will do, and more generally about the collapse of Labor's heartland vote, money is being splashed out, now and later, to help lower-income and middle-income ''battler'' families with escalating bills and to make them feel more secure.

The Gillard strategists have studied the Howard 2001 text, when the Liberals were apparently headed for defeat. Howard pitched his rebuilding budget with handouts to seniors. Julia Gillard and Wayne Swan are tilting their caps at battlers.

Despite the big savings, this does not feel like a tough budget or an austere one. When the government is boasting that several billion dollars is being handed to families and small business in a ''spreading the benefits of the boom'' package, it can hardly be also saying it is playing Scrooge. The Treasurer's lead-up talk has been more macho than his actions, although the ''saves'' add up to $17 billion in net terms. As Swan did say, lower and middle-income earners have basically been protected, although there are nips and tucks.

The boom money is being used, in effect, to top up the compensation for the carbon tax. Families with schoolchildren get a (means-tested) dollop of dollars next month, just before the carbon price hits. They can look forward to higher family payments in a year's time, shortly before the election is due.

And there is extra money for those on income support early next year, which ticks the cost-of-living and Labor-values boxes.

In fact, those getting the help are mostly already fully or more than fully compensated for the carbon price, but often that is not the perception. And these families are feeling squeezed by the high cost of living even before the carbon tax.

The budget hits the rich in sensitive spots, notably superannuation it can justifiably claim to pursue ''Labor values'', it contains some reform and, yes, it keeps THAT promise.

The $1.5 billion surplus is certainly ''modest'', as Swan says - and who knows whether it will actually be delivered - but it's there, when a few months ago it looked an impossible dream. Argument has raged for months among experts about whether a surplus is necessary or desirable. Swan insists it is: to send the right message to overseas investors, and to re-weight economic management more towards monetary policy, allowing room for more interest rate cuts. In the end, however, the government had to close its ears to counter argument - the promise had become iconic.

The Coalition's opposition to the company tax reduction from 30? to 29? - part of the mining tax package - has turned out to be a boon for the government. When lower-income and middle-income earners, many of whom have become the Abbott battlers, needed more shielding and wooing, this windfall has been handy to the government. It has taken the $4.8 billion and put it to much better political use. No longer are companies across the economy getting this benefit of the mining boom. It's going to Mr and Mrs Average.

The government can say it is spending this money in a ''Labor'' way. It also believes it has wedged Tony Abbott. How can he oppose funds flowing to ordinary families? Yet this is financed from the mining tax - and he has said he'll oppose (almost) everything that comes from that revenue source. The government, rightly or wrongly, feels it has been pretty clever here, in giving Abbott what it sees as a hard choice.

Of course, those in the corporate sector will complain. But they can be directed to Abbott, the government says, because it was the Coalition that was preparing to make it impossible to deliver the cut to all companies (the Greens would have supported it for small businesses).

Whether the corporate sector's ire will land on the opposition rather than the government is, however, a moot point. The government is trying to give itself a letout by saying to its business tax consultative committee that if it can come up with offsetting savings, Labor will push on with attempting to get the company tax cut though Parliament.

The budget does contain a tax break for small businesses that make losses. But, overall, firms struggling in the two-speed economy are getting less from the mining boom than was in prospect a few months ago.

The company tax commitment is not the only promise the budget breaks. Remember the government holding out the benefits of a standard deduction for taxpayers? That has bitten the dust - saving $2 billion. And there are some others - notably deferring meeting our foreign aid target, which saves nearly $3 billion.

''Labor values'' are reflected not just in spending on battlers, but in the $1 billion allocated to the first stage of the national disability insurance scheme. This is a ground-breaking reform, to which Abbott has given bipartisan support. Money for dental care is also in the Labor mould, as is the aged-care blueprint.

This is not a pre-election budget because the government wants to run full term and is bound by its agreements with crossbenchers to do so. But equally, its situation is so precarious that it has to be ready for an election any time. So this has the hallmarks of an election budget.

Will it do Gillard a great deal of good with her party or the people? It should be popular with the caucus - Monday's critics of the tightening of eligibility for the parenting parent will be happy with the supplementary allowance to the unemployed, students and parents with young children. But the budget will only alter caucus perceptions of Gillard if it gives a significant bounce in the polls and that is sustained. It is hard to see the public fundamentally changing its view of the PM and the government on this basis of the budget or much else on the horizon.

Even while the government delivers in the quite difficult budgetary circumstances in which it finds itself, the impression is that it is embattled on many fronts. The takeout from this week is likely to be as much about Craig Thomson as about a budget that gives out dollars to voters who are more likely to pocket them with relief rather than with gratitude.

Michelle Grattan is political editor.