The Burvale Hotel in Nunawading is an unassuming, low-lying red-brick building on a major highway in Melbourne’s outer suburbs, surrounded by a huge carpark, a motel and a Dan Murphy’s.
Attending last night’s gathering of 100 undecided voters and the nation's prime minister in the seat of Deakin – Australia’s second most marginal seat – was a somewhat surreal affair.
By my count, Gillard faced 17 questions from the floor. They covered off on such diverse topics such as the tax treatment of charities, negative gearing, same-sex marriage, superannuation for carers, schools funding and hospitals.
Only one question from the floor was about the budget and when we may hope to see a return to surplus.
No one present seemed particularly agitated. It was a polite and respectful exchange of views about important long-term topics.
As far as it is possible to intuit from such events, people were fairly relaxed and comfortable about the future of the nation.
But a budget storm is brewing and I wonder if the Australian people realise yet that last night, today even, is as good as it gets.
Having mostly avoided the fallout from the global financial crisis, sheltered by the economic cocoon of a mining boom, reality is about to catch up with us.
Australians are about to see a decline in their real living standards. As the economy slows out of the mining boom, we can expect to see the economy and wages grow at a below trend rate. Inflation will likely remain subdued, eating a little less out of pay packets.
But government is – if politicians follow the advice of economists – about to take a chunk.
Having funnelled money into people’s pocket during the good times, with personal income tax cuts, stimulus cheques, one-off bonuses and household compensation – governments will need to curb their enthusiasm during the not-as-good times.
Everything that was given must now be taken back. It wasn’t the politicians’ to share in the first place. The one-off proceeds of the boom should never have been built into permanent and ongoing personal income tax cuts of the magnitude that were given.
Our tax base has been denuded. And it’s time to regain some fiscal fig of budget prudence.
Budget watchers have been attempting to sound the warning bell for years. Deloitte Access Economics director Chris Richardson must get a special mention for years of warnings that the mining boom will end one day. To Chris must go the ultimate rights to an 'I told you so', or two.
The Grattan Institute has really set the cat among the pigeons this week with its warning that tax hikes or spending cuts totaling $60 billion in today’s dollars will be needed to bring state and federal budgets back into balance in 2023 (Australia's on track for a decade of deficits, April 22).
As the Institute’s John Daley told me at the weekend, the order of magnitude of cuts needed is so great, that no Australian can expect to be spared.
Families will receive less benefits, as governments shift or pause indexation of payments. They may be asked to pay more GST on a wider range of products, or at a higher rate. Bracket creep will eventually see more income tax taken out of their pay. Generous tax breaks on superannuation will be pruned even further. It’s unavoidable.
Of course, it is prudent of the government not to cut too savagely in the short term to undermine growth. But if we want to be Keynesians when it comes to macroeconomic policy, we need to be Keynesians on the way up. So far, we have failed. Labor’s attempts at finding savings have been offset entirely by new spending.
Australians continue to live with the idea that all the losers of tax reform can be paid off. But they can’t. If governments are to balance the books in the long term – as both Keynesians and austerity fans believe we should – there will have to be some uncompensated losers from tax reforms.
Australians are going to have to pay more tax than they’ve got used to or get used to shoddier services.
Either way, we will see a decline in real living standards of a similar magnitude to the gains of recent years.
Whichever side of politics convinces voters to install them to power come September 14 will have to confront this new reality. And unsuspecting punters will not thank them for it.
The next people's forum at the Burvale in three years time may be a less civilised affair.