Monday, March 14, 2016
I hope I'm wrong, but it now seems that the sweeping tax reform we were long promised by the Coalition – with everything on the table, and a white paper to follow a green paper - has shrivelled to some minor tinkering to pay for a minor tax cut.
Which brings us back to the budget's primary macro-economic purpose, achieving "fiscal sustainability". We've been assured – as usual, by leak – that any improvement in revenue estimates arising from the seeming recovery in iron ore prices will be allowed to reduce the budget deficit, not used to fatten the tax cuts or otherwise buy votes.
Considering all the crocodile tears the Coalition shed over "debit and deficit", it's the least Malcolm Turnbull could do.
The Coalition has done little to restrain government spending in its first term for two reasons, one political and one economic. The political reason is that the public and the Senate held Tony Abbott to his last-minute and utterly unneeded promise not to cut any of the key areas of government spending.
The economic reason – which was perfectly sensible and actually began under Labor – was that with the economy growing at well below its "trend" (average) rate, now was the wrong time to weaken it further by raising taxes or cutting government spending.
With forward-looking trend growth now reduced to 2.75 per cent a year and the economy growing by 3 per cent in 2015, we should be getting on with budget repair.
So both those restraints are now inoperative – or should be. It's one thing to avoid nasties in a pre-election budget; it's quite another to lock yourself in for another term with promises not to cut this or that spending, or not to adjust taxes.
Similarly, it's all very well for Turnbull's supporters to say he needs his own mandate to establish his legitimacy and authority with his fractious backbench; it's quite another for him to gain a "mandate" that doesn't include a licence from the electorate to make the improvements we need.
So a key issue will be how much reform Turnbull promises not to make and how much leeway he leaves himself to do what needs to be done.
But after the monumental setback of Abbott's first budget, I worry not just about the character strength of our politicians, but also about the quality of the advice they're getting from the econocrats of Treasury and Finance and the heads of other departments.
One thing the bureaucrats should understand is that the ideological push for lower government spending is a snare and a delusion. It's never gonna happen, because the public won't accept it and there are no pollies mad enough to try.
The key to good spending management is to accept that the goal should be not smaller government, but better government. Delude yourself that we'll soon be seeing smaller government – that there are vast areas of things governments will stop doing – and you're more susceptible to the kind of short-sighted, mindless cutbacks that often involve false economies, mere cost-shifting or savings that don't stick, of which we saw so much in the first Abbott budget.
But accept that we need better government – that government will always be with us, with ever-growing responsibilities and spending – and you see more clearly that the task is to identify and correct specific instances of excessive or ineffective spending – with which the budget no doubt abounds.
You slow the rate of spending growth, reducing the incidence of what the public thinks of as "waste" (it may look like waste to me, but not to whoever's income it's adding to), thus giving taxpayers better value for money and helping to reduce the resistance to paying tax.
Focus on better government and you realise that the "no-brainer", set-and-forget, don't confuse me with the details, approach favoured by econocrats has an appalling record of failure.
You don't bother to think hard about the peculiar characteristics of the service being performed, nor do you wonder about the wisdom of letting private firms "sell" heavily subsidised government services, you just resort to generic, magic answers such as imposing an "efficiency dividend", "getting the incentives right" and making the provision of public services "contestable".
Economic shibboleths are no substitute for detailed knowledge and careful analysis.