The magic pudding budget

WITH a drop of the alchemist's potion, Wayne Swan has transformed the lead of last year's $44 billion deficit to the gold leaf of a $1.5 billion surplus. His critics say it's a fool's gold, a slippery contrivance of accounting trickery, of smoke and mirrors. It's real all right but it will be met by a wall of disbelief because a challenge that seemed so insurmountable was, in the end, so breezily conquered, and because this government has lost public trust.

This is a magic pudding budget. It does something very big - erasing the red in just one year, despite tax revenues collapsing by $150 billion since 2008 - with the appearance of only spot fires of pain. Indeed, the Treasurer was able to meet his pledge - politically unavoidable once uttered - of a black bottom line, while also giving away half his $34 billion savings and adding some joy to the mix.

Typical of the Howard years, the goodies emphasise the family, with $5 billion in new payments to households. But there's more than $1 billion too for single parents, students and the unemployed.

An election budget without an election, some might think. Spreading the love divide and conquer. The only problem is that conquering requires some advantage, some elevation. You've got to be heard.

Political considerations were at the front, centre and rear of Swan's mind in shaping a budget that tries to ease reaction to electricity and gas imposts of the carbon tax from July 1, and tries to kickstart recovery in the government's woeful public standing.

But many of the ''saves'' - particularly on the tax side - arise from decisions not to do things the government earlier won plaudits for saying it would do, such as increasing overseas aid, cutting the company tax rate by 1 percentage point, proceeding with the standard tax deduction and a 50 per cent discount on the tax on interest income.

Workers over the age of 50 were to be allowed to boost their superannuation accounts by up to $50,000 a year - double the present cap - if their balances were below $500,000. But that has been pushed back two years, potentially into the political never-never. It is hardly consistent with Swan's boosting of superannuation as a means for Australians to secure ''a better retirement, and [giving] those on low incomes a better deal''.

And, with one hand, sole parents are encouraged back to the workforce with sticks and carrots while, with the other, are denied a lot of the childcare provisions necessary for this to happen.

Half the ''saves'' are actually tax increases.

The numbers come together because a lot of spending is deferred, particularly in defence (where savings of $5.5 billion are forecast) and foreign aid ($3 billion), and because of an expected recovery in tax receipts, particularly company tax.

Perversely, then, one of Swan's problems in achieving a surplus was a deterioration in the outlook for tax receipts in only the past six months. Unfortunately for the premiers, however, most of this fall is explained by smaller-than-expected increases in GST revenue, which makes it more of a problem for the states' budgets, not Swan's.

Swan's savings are big, to be sure, but hip-pocket nasties are limited. And some target the income elite. These include tougher taxation of golden handshakes and living-away-from-home allowances for foreigners in highly paid jobs in Australia, and the doubling of tax on super contributions for those earning more than $300,000 a year.

Scrapping the company tax cut was predictable and predicted. A worthy aim, it fell foul of Tony Abbott, who pledged to steadfastly oppose the mining tax and everything it afforded, and the Greens, with their anti-business bias. But its disappearance lies more squarely at the feet of business. From a position of influence with the Coalition, it did little to argue for the tax cut and cannot legitimately cry poor now. That Swan chose not to bank the nearly $5 billion in proceeds - indeed, that he had the comfort zone to redirect the cash to families - was more surprising, but a measure nonetheless of the government's anxiety at cost-of-living pressures stemming from the tax on carbon. ''We've taken decisions about priorities and I don't apologise for that,'' Swan said yesterday.

The budget predicts economic growth will return to normal in the coming financial year. Such is the pessimism that people in non-mining Australia will be tempted to doubt it. But it's hardly heroically optimistic to predict growth returning to normal. Nor is the job forecast. Unemployment will rise fractionally to 5.5 per cent before falling to 5 per cent, the budget says. That's about as low as we can reasonably hope to go without igniting inflation problems.

Inflation is expected to return to the middle of the Reserve Bank's target range of 2 to 3 per cent. Again, this is not difficult to believe. The normal caveats of unforeseen tempests notwithstanding, therefore, the fundamentals appear set more solidly than the doubters have it.

But political gloss alone won't do the trick. If indicators hold, nothing will save this government. After yesterday, however, the government is a step closer to ensuring it doesn't die wondering.