Monday, May 16, 2011

Gillard's budget critics run for cover

One reason governments aren't nearly as "tough" as economists and others urge them to be is their knowledge that when the going gets rough - when the losers from that toughness start vigorously objecting - the urgers will be missing in action.

The reaction to last week's budget offers a good example. On budget night every petshop galah was complaining it wasn't tough enough - a "missed opportunity", the last Julia Gillard will get before the next election.

What they were on about was the need to roll back all the middle-class welfare John Howard inserted into the budget.

But there was a fair bit of rolling back in the budget and, on day two, when battlers on more than $150,000 a year (egged on by the media) were screaming blue murder, claiming to be on middle incomes and insisting "$150,000 a year isn't rich", almost all the previous day's urgers were out to lunch. (The media are always accusing the pollies of spin, but the media often put their own spin on the pollies' words. Neither Labor nor any politician would be stupid enough to claim people on more than $150,000 a year were "rich" rather than just comfortable, but the media happily put that emotive word into the pollies' mouths.)

Our small army of taxpayer-subsidised commentators from the libertarian think tanks - the Institute of Public Affairs in Melbourne and the Centre for Independent Studies in Sydney - had surprisingly little to say (with the honourable exception of the centre's Jessica Brown). Presumably, they were too busy preparing another jihad against "churning". You get the feeling Labor cops more criticism for its slowness to roll back middle-class welfare than Howard got for putting it there (here the economist Saul Eslake is the honourable exception). Certainly, the smaller-government brigade is a lot tougher on the government for its timidity than it is on the opposition for its blatant populism and inconsistency.

And if some of the measures proposed in the budget fail to get through the Senate, just watch as economists and media commentators blame it all on the Greens, not the Libs.

But I'm fairly confident most of the measures will get through. I have a feeling they were selected to be acceptable to the Greens and lower-house independents.

Against that, however, the failure of the pure at heart to offer the government any support in its battle with rent-seeking punters, an increasingly partisan media and an unprincipled opposition is a good way to increase the likelihood that those with the balance of power will decide the issue has become too hot so they dare not risk supporting the reforms.

It's funny commentators who last year were claiming Gillard's minority government would be incapable of achieving any reform are now berating it for this "missed opportunity". What were they hoping for: a truckload of tough measures that didn't stand a chance of getting through?

What the two attitudes have in common is they both frame Gillard as a loser. We know about Aussies' love of cutting down tall poppies, but here we're seeing something darker: if someone's down, why not join all those who are kicking them.

It's surprising how those who profess to care so deeply about the good government of the country see so little need to help a weak government be stronger. With our reform advocates it's all care but no responsibility.

As for the notion that governments can only do unpopular things in their first budget after an election, I don't think it applies to minority governments.

In any case, a look at the budget figures makes it clear Gillard is sailing close to the wind in being sure of achieving a small budget surplus in 2012-13 and keeping that surplus in the following few years.

There's a high likelihood that, to increase her margin of safety (and meet her pledge to limit real spending growth to 2 per cent a year), Gillard will need to achieve further spending cuts in her next two budgets - whether she fancies the idea or not.

Last Monday I wrote that the Reserve Bank governor's pay (I should have called it his total remuneration package) of $1.05 million a year had jumped 85 per cent in the past five years. This calculation was based on information in the Reserve's annual reports.

Now the chairman of the Reserve's remuneration committee writes that the figures used in this calculation are not comparable because of the changed accounting treatment of non-cash benefits. He says the cumulative pay rise over the period was in fact 34 per cent.

I have been unable to confirm his calculation from publicly available information. I am puzzled by it because the figure used as the base for my calculation, $570,000, was described in the Reserve's 2005 annual report as the governor's "remuneration package", which included "cash salary, the Reserve's contribution to superannuation, housing assistance, motor vehicles, car parking and health insurance and the fringe benefits tax paid or payable on these benefits".

The letter the previous chairman of the remuneration committee wrote to the Treasurer in September 2009 (made public because of a freedom-of-information request) advised that the value of the governor's total remuneration package had risen by 33 per cent just between 2008 and 2009.

I note that the incorporation into the governor's base salary of "other allowances (including motor vehicle)" worth $44,600 a year - which also included an unused entitlement to spouse travel, valued at $25,800 a year - led to a commensurate increase in his employer's superannuation contribution, which is made at the rate of 21.3 per cent.