By taking money from those who never had it, the Treasurer deftly taps out a pain-free surplus.
You put your left foot in,you put your left foot out.You put your left foot in,and you shake it all about.You do the hokey pokeyand you turn around ...
And that's what this budget is all about.
This budget is a piece of fancy footwork that enables the government to return the budget to surplus, while causing minimum pain to voters.
Treasurer Wayne Swan has perfected an audacious and striking new technique, henceforth to be known as the budget hokey pokey.
It goes something like this. Announce a dazzling new spending measure. Win yourself the love and admiration of battlers struggling with the cost of living. Left foot in.
Next year, keen to prove that you're a serious Treasurer, serious about finding savings, you announce you will axe last year's big spending measure. Win yourself plaudits from commentators about what a tough Treasurer you are. Left foot out.
Labor has become very good at canning its own policies, which, after some examination, have turned out to be duds or too expensive.
This year's budget only adds to the mounting scrap heap of Labor policies that never got off the ground. And not necessarily because they were bad policies, only expensive.
Ken Henry must be weeping into his cornflakes this morning to see what has become of several of his tax recommendations.
Left foot in: government wows business by announcing it will use the revenue from its mining tax to fund, among other things, a reduction in the company tax rate of 1 percentage point, in line with Henry's recommendation that the corporate tax rate should, in the longer term, be reduced from 30 per cent to 25 per cent.
Left foot out: government axes the tax cut because it can't find the numbers in Parliament to pass it, delivering savings of $4.8 billion over four years.
Left foot in: government wows taxpayers by promising a standard deduction for expenses come tax time. Mums and dads will be freed of the hassle of keeping receipts, giving them more time to play with their children in parks etc.
Left foot out: Scrap that. Save yourself $2.1 billion over four years.
Left foot in: wow savers by announcing a discount on interest earned on bank deposits. Sell it as part of Ken Henry's plan to level the skewed tax treatment of investments - property, shares and savings. Win praise from banks who say it will help them source domestic deposits and ease funding pressures.
Left foot out: Scrap that. Save yourself $920 million.
Left foot in: delight those approaching retirement by announcing you will increase the concessional cap on superannuation contributions for those with balances less than $500,000 from $25,000 to $50,000.
Left foot out: Scrap that.
Left foot in: Announce, to the delight of national security-conscious voters, that you will increase defence spending each year.
Left foot out: Scrap that. Find savings of $5.4 billion over four years.
Left foot in: Become a friend to the poor by announcing you'll increase the foreign aid budget to 0.5 per cent of gross national income.
Left foot out: Defer that. Save $2.9 billion.
The most politically ingenious part of this dance is that by scrapping measures which had never in fact come to pass, people are bound not to notice it much. The money never actually hit hip pockets. It's hard to miss something you never had.
Does it represent reform of the tax system? No. Does it help put finances onto a more sustainable footing? Not really. Does it keep journalists busy and make it look like you're doing stuff. Sure. Leads us all on a merry dance.
This budget is about balancing the books and little else. It pays little attention to ensuring taxes are raised in the most efficient way and that a fairer share of the nation's mining wealth is returned to taxpayers. Nor is it much concerned with efficient spending.
Indeed, far from hacking back the worst excesses of the Howard years, which eroded the tax base and increased family entitlements, most of this year's cuts simply remove the worst excesses of the policy-on-the-run Rudd and Gillard years.
In fairness, much of the hard yards were done in previous budgets, with new means tests on the baby bonus, family tax benefit part B and private health insurance.
Households are sheltered from much of the pain this year, with poor foreigners and defence commanders robbed for funds to give to families, pensioners, students and the unemployed.
Economists had fretted that this budget would hurt the economy by reducing demand at a time when it was already weak. But the government has managed to cut back on spending on people who wouldn't spend the money anyway - foreigners - and channel it to lower income households who are the most likely to spend.
From the Reserve Bank's point of view, this budget could even boost household demand in the short term. For home borrowers, it means the bulk of the impact of this budget in opening the way for more interest rate cuts was probably represented in last week's interest rate cut.
A budget that cuts spending and boosts demand?
Fancy footwork indeed.
Frequently Asked Questions about this Article…
What does the article mean by Treasurer Wayne Swan's 'budget hokey pokey' and how does that affect everyday investors?
The article uses the 'budget hokey pokey' to describe how the government publicly announces popular spending measures, then later scraps or defers many of them (often before they ever took effect). For everyday investors this means the budget focused on returning to surplus while minimising visible pain — many headline measures never actually delivered cash to households or investors, so the direct financial impact on personal finances and portfolios may be smaller than media headlines suggest.
How did the budget propose to use mining tax revenue and what happened to the planned company tax cut?
The government said it would use mining tax revenue to fund a proposed 1 percentage point cut to the company tax rate (part of a longer-term idea to move from 30% toward 25%). However, that company tax cut was later axed because the government couldn't find the parliamentary numbers to pass it, producing savings of about $4.8 billion over four years.
Were promised tax conveniences for taxpayers, like a standard deduction, implemented or removed?
A standard deduction for expenses (meant to free taxpayers from keeping receipts) was initially promised but then scrapped to save about $2.1 billion over four years. In short, that convenience did not make it into the final measures covered in the article.
What happened to the proposed discount on tax for interest earned on bank deposits and what does that mean for savers?
The budget initially announced a discount on tax for interest earned on bank deposits to rebalance tax treatment across property, shares and savings. That measure was later scrapped, saving around $920 million. For savers, that means no immediate change to the existing tax treatment of bank deposit interest based on the article's content.
Did the budget change the concessional superannuation contributions cap for people nearing retirement?
The government announced it would raise the concessional cap from $25,000 to $50,000 for those with super balances under $500,000, but that proposal was subsequently scrapped. According to the article, that increase did not go ahead.
How did the budget treat defence spending and foreign aid, and what are the savings involved?
Defence spending had been announced to increase each year but was later scrapped in the budgeting process, yielding about $5.4 billion in savings over four years. An increase in foreign aid to 0.5% of gross national income was also announced and then deferred, saving about $2.9 billion. These moves are examples of politically visible measures that were trimmed or delayed to find savings.
What does the article say about the budget's likely effect on household demand and interest rates?
The piece argues the government channelled cuts toward lower-income households (who are more likely to spend), while cutting spending in areas unlikely to boost domestic demand (for example, on foreigners). From the Reserve Bank's perspective this could boost household demand in the short term and help open the way for further interest-rate cuts — the article notes much of that effect may already have been reflected in a recent rate cut.
Does the article consider this budget to be genuine tax reform or a fairer sharing of mining revenue?
No. The article describes the budget as primarily about balancing the books rather than reforming the tax system. It argues the measures pay little attention to raising taxes efficiently or ensuring a fairer share of mining wealth is returned to taxpayers; many changes simply undo or defer previous policy proposals rather than delivering structural reform.
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