One of the primary objectives of the 2017-18 budget is likely to be to put some distance – politically and in terms of economic policy – between the Turnbull government and its predecessor, that of former Prime Minister Tony Abbott.
The Abbott government came to office with a view that any and all public debt was “bad”, and that returning the budget to surplus as quickly as possible was a political and economic imperative. Hence, its first budget emphasised cuts in government spending, including in areas where it had previously promised there would be no cuts.
And it increased taxes, despite having previously promised there would be no tax increases under a Coalition government. The political legacy of those broken promises – and the widespread (and largely justified) perception that those measures were manifestly unfair – contributed to Malcolm Turnbull’s near-death experience at last July’s federal election.
The first budget of the returned Turnbull government will be largely about burying the legacy of its predecessor.
Treasurer Scott Morrison will pronounce the death rites for the so-called “zombie” spending cuts left over from the 2014 budget, which the Senate has refused to pass. According to the Parliamentary Budget Office, these are still contributing almost A$8.5 billion to the improvement in the budget bottom line over the four years to 2019-20 (forecast in last year’s MYEFO). It’s also contributing almost A$43 billion of projected savings over the ten years to 2026-27.
The government will of course be seeking savings from the same areas as were to be affected by these zombie measures. But, as we have seen with the announcements last week regarding universities and schools, the savings sought will be smaller.
In addition, greater attention will be paid to perceptions of “fairness” than was the case with the “zombie” measures. The same is likely to be the case with regard to the health measures to be announced in the budget itself.
The budget will also confirm that the so-called “temporary deficit repair levy” will lapse on 1 July. This was the 2% surcharge on the top marginal personal income tax rate which was the only significant taxation measure actually implemented by the Abbott government.
The foreshadowed distinction between “good” and “bad” debt is another element of the budget’s effort to distance the Turnbull government from its predecessor. For all of Tony Abbott’s efforts to portray himself as the infrastructure prime minister, public infrastructure spending actually declined on his watch.
That partly reflected the Abbott government’s unwillingness to accept the advice of then RBA governor Glenn Stevens, the IMF, the OECD and others, that government borrowing, especially at record low interest rates, to fund well-targeted infrastructure investment was a good thing.