When Finance Minister Mathias Cormann held up a new Liberal Party-funded booklet entitled ‘Labor’s mess’ yesterday, the depth of the Coalition’s growing political crisis couldn’t have been clearer.
Here, just six days out from a historic budget, the key message is: “This is all Labor’s fault.”
Well, haven’t we heard that message just a few times before? Perhaps it’s time to shift attention to why this is a “growth budget”, as Cormann named it, rather than a “highlight Labor’s shame budget”.
The current sky-is-falling strategy is just not helping the economy, and is likely to haunt the Abbott government as plummeting consumer confidence translates into subdued economic activity and more tax revenue writedowns.
Indeed, all the fear being spread by talk of a “debt levy” could end up hurting tax revenues by more than the amount the still-unconfirmed tax is likely to raise.
Just as ironically, we now have opposition leader Bill Shorten arguing that an extra tax on wealthy Australians simply will not be allowed to pass the upper house, while Cormann asks: “Is Bill Shorten really saying he wants pensioners and low-income earners to carry most of the burden?”
Spot the socialist. Everything is topsy-turvy.
The overwhelming picture is one of a political team that were virtuosos in opposition, but headless chickens in power. This must change, as fiscal reform needs to get underway sooner rather than later.
The problem is, if the Abbott government continues to squib the politics of reform, then it can only be heading for a dramatic blockade in the upper house – as explained yesterday.
And if that is the case, how will voters view an election in which Abbott runs on harsh reforming policies, and Labor, Greens and Palmer are gifted the opportunity to argue that a much more gradual approach to reform is needed?
They really would be able to make those arguments, because there are oodles of economic data to say things aren’t as bad as the Abbott government insists. Yes, the nation’s net debt-to-GDP ratio, at 17 per cent, is bad, but the real reform relates not to servicing that debt, but to cutting spending trajectories to make sure it doesn’t get worse.
Trajectories can be steep or gentle, and that is what a double dissolution election would be fought on.
Labor operatives may be doing a merry jig at that prospect, but it would be premature to think Abbott could not win such a contest. In troubled times, voters can surprise pollsters and go with the devil they know, rather than the devil they knew a year or two before.
The 1974 election is instructive in this regard. The Whitlam goverment, elected in December 1972, dared to play double-dissolution roulette, despite being in the depths of grim economic conditions.
Specifically, consumer confidence was very low following the 1973 oil shock and the 1973-4 global stock market rout. It’s worth remembering that that sell-off was deeper and more protracted than even the 2008-09 sell-off during the GFC.
The Sydney All-Ordinaries Index (in those days each state had one or more exchanges, rather than the unified ASX set up in 1987) fell sharply in 1973-4, following a more general decline in the previous three years. Its total loss was 61 per cent over five years, compared with a 55 per cent peak-to-trough fall in the ASX 200 between the start of the sub-prime crisis in 2007 and its 2009 GFC low.
Consumer sentiment was considerably lower in 1974 than it is today, the latest plunge notwithstanding, as the following charts from Trading Economics show.
The Whitlam government took a gamble on being re-elected, despite the stockmarket rout and low consumer confidence – and won nonetheless. And all the contested legislation that had triggered the double dissolution was then passed.
There are limits to this comparison, of course. The Whitlam era started with huge momentum for change – from what voters saw as the staid and old-fashioned policies of a Coalition government that had ruled for 21 years.
Specifically, while many other developed countries were revelling in free education, health and generous welfare, voters elected Whitlam to help Australia catch up with the post-war welfare state (something we can now all be glad didn’t happen – see The death knell of social democracy, August 2011 )
The momentum that Whitlam brought into government was just enough to carry him through the 1974 double-dissolution as well. Times might have been hard, but voters wanted reforms of largesse, not austerity.
The Abbott government does not have that advantage. Its election platform relied on getting rid of wrecking-balls – the carbon and mining taxes – that, truth be told, were not really wrecking anything.
It did, however, win a mandate for being a ‘grown-up’ government and ending the “debt and deficit”.
The problem was that it pretty much kept secret its magic formula for doing so, well into its period in government (Hockey’s real economic plan is still secret, 27 February )
On Tuesday, all the secrets will be out, but are unlikely to be much less painful than the bits that have been leaked early -- especially the debt levy.
The budget documents are therefore unlikely to give the government much momentum with voters – and, if the debt levy is included, it may actually have lost some of its core constitutents.
How did this happen? While the Abbott government’s pre-election promises did not add up (for example, scrap the carbon tax but keep the compensation) skillful political managers could have stretched the government’s mandates enough to serve the public interest, without an avalanche of opprobrium making the Senate impassable.
But unless the budget contains something extraordinary and unexpected, that is where Australian political-economy will now find itself.
Whitlam’s shoes in 1974 look positively comfortable by comparison.