THE DISTILLERY: Budget blend
Treasurer Wayne Swan has handed down a budget and, as is tradition, the nation’s business scribes have handed down their judgements. The conclusions are somewhat varied, although the ‘Labor sucks’ thread is woven pretty neatly throughout all of them.
Where to start? Perhaps we should begin with the best introduction. That probably has to go to Fairfax’s Adele Ferguson.
“If politician Benjamin Disraeli was alive today and reading the 2013 federal budget, he might well have revised the third part of his saying from: ‘There are three kinds of lies: lies, damned lies, and statistics’ to damned budgets – particularly government budgets posted weeks before an election. The brutal reality is Treasurer Wayne Swan's ‘stronger economy, smarter nation, fairer society’ 2013 budget is predicated on politics rather than economics and that means the numbers have been bent to fit the spin.”
The Distillery just likes the idea of resurrecting Disaraeli 133 years after his death to get him to read something written by Wayne Swan. Surely we can give him something from Woodhouse or Hendrix first.
Anyway, Fairfax’s Ross Gittins believes this budget is the “strangest” you’re likely to see, but first couches that description in a specific context. Given the cuts and the lack of handouts, this feels like a first budget from a government, rather than the last.
“But its strangeness doesn't end there. The Parliament has so few weeks left to sit, it is likely most of its controversial measures won't become law before the election (with the increase in the Medicare levy the main exception). That makes it less a budget than an election policy speech. Only if Julia Gillard is re-elected can we be sure the budget measures will become a reality. And since the chances of Labor's re-election seem low, this is more Tony Abbott's budget than Gillard's. It will be he who decides which measures survive and which don't; whether Labor's last budget becomes anything more than its final, impotent gesture.”
The Australian Financial Review’s economics editor Alan Mitchell believes this budget is “the best brought down by this government”, but also laments the wasted time towards necessary reform to build the federal government’s fiscal strength.
“The budget projections are better than economists expected, thanks to the long-term savings now in place or proposed. But they are not good enough. The Treasury, it must be said, has an almost inexhaustible capacity to turn the desperate urges of its political masters into halfway decent or even better budgets. In this budget Treasury’s hand can be plainly seen in the emphasis on long-term savings – what Paul Keating might have called quality cuts. It is a pity that it could not persuade this government to do more of them, and we can only hope that it has more luck with the next government.”
The Australian Financial Review’s Jennifer Hewett agrees with her colleague Mitchell that this budget was finally a step in the right direction, but all too late.
“Wayne Swan has taken a sow’s ear and turned it into a flying pig. That’s how his sixth budget can magically go from a $19 billion deficit this financial year to a small surplus within three years. We all know the chances of Swan still being Treasurer by then, but it’s clearly considered politically important to go to the election claiming some sense of official fiscal responsibility. Later rather than sooner, of course. After several budgets in which Swan insisted he was taking the ‘tough choices’ on spending when he clearly wasn’t, for example, he’s now discovered virtue in no longer having to pretend.”
Fairfax’s Malcolm Maiden won this columnist last year when he said the budget had more rubber in it than Gumby.
“But not everyone could see a shortfall of this magnitude looming. One of the themes of the resources boom that peaked at the end of 2011 was that Australia had entered a commodity price super-cycle, where prices and Australia's terms of trade would stay ‘stronger for longer’ as Asia continued to industrialise and create a new consumer class. The current downturn is only a chapter in the longer story. Commodity prices are the tell-tale: iron ore and coal are about 35 per cent below their boom-time peaks and all metals are below their highs, but the Reserve Bank's commodity price index is still three times higher than a decade ago.”
The Herald Sun’s Terry McCrann explains how Swan has built the budget on a series of assumptions.
“First, that the whole dodgy ramshackle structure will hold together through September. While hoping that the average punter won't notice just how ramshackle – and painful – it is. At least, until then. His two really big hopes are that the domestic economy will grow not just at a sustained clip, but that it will grow evenly. That we will transition smoothly from the resources boom to renewed growth in the non-resources side of the economy. But at the same time that China will keep on booming, so it keeps buying more of our resources, commodity prices level off and don't plunge, and as a consequence both company tax and personal tax revenues stay strong.”
Every budget is made on the back of a variety of assumptions, many of which turn out to be wrong. But you take his point. Meanwhile, The Australian’s economics editor David Uren is similarly suspicious of how the same forces that blew up the budget surplus Labor hoped to grab this year won't blow up the one they see in 2015-16.
“The government has highlighted the sledgehammer to revenue resulting from the abrupt fall in commodity prices and the intense difficulties the high Australian dollar has created for business. The budget papers provide evidence of this, with revenue reaching 23.5 per cent of GDP, rather than the 24 per cent promised in last year's budget. However, the budget documents also reveal a ‘forklift’ underneath spending. The government has repeated the promise it made last year to deliver greater budget discipline than has been shown by any government in the past 30 years, with spending falling as a share of GDP to 23.8 per cent by 2016-17. The trouble is that this was supposed to have been achieved in the current year. In fact, spending this year will still be 24.2 per cent of GDP.”
The Australian’s John Durie finds some good news for business, there weren’t any big unexpected RSPT-scale surprises for them.
“Given the political backdrop to the budget, that much was expected. However, the long list of ‘integrity’ tax measures raising $4.1 billion will give the business lobby groups plenty to complain about as they prepare for a change of government. In large part it will be treated as the fatalistic document it is.”
That’s not to say that there weren’t some changes that would impact some big businesses, as explained by The Australian’s Andrew White.
“Mining companies will no longer be able to immediately write off the cost of buying an exploration company as the government aims to shut down a loophole that has generated $11 billion in claimed deductions for the industry in recent years. The government plans to abolish changes introduced in 2001 that allowed big mining companies to immediately write off the acquisition cost of a company that acquired mining rights and spent on exploration. Instead, companies will only be able to deduct genuine exploration expenditure in a change expected to generate an extra $1.1 billion for the budget.”
The Australian Financial Review’s Chanticleer columnist Tony Boyd explains his fund managers won’t be able to get a free ride from a particularly strategy he’s spoken out against.
“…Those fund managers who were double-dipping on the dividend imputation system through dividend washing will no longer be able to do so from July 1. Chanticleer called for an end to dividend washing three weeks ago, prompting the Australian Taxation Office and Treasury to act fast and plug a loophole that was driving record turnover in bank stocks at dividend payment time.”
And The Australian Financial Review’s Geoff Kitney says it’s now time for Opposition Leader Tony Abbott to stop basing his claim to government on how bad Labor is. It’s time for him to illustrate his alternative vision.
In other news, because other stuff did happen yesterday, The Australian’s Bryan Frith says Perpetual is well placed to win Trust Co, with Equity Trustees placing a few too many conditions on its rival offer.
And finally, Fairfax’s Elizabeth Knight lays out the latest details on how deeply new BHP Billiton boss Andrew Mackenzie plans to cut into the miner’s capex budget over the next three years.