The intergenerational report will make a case for long-term budget repair, just as the government may have lost the political capital to actually undertake long-term budget repair.
The Coalition came to office promising a “credible path back to budget surpluses”. But it has already leaked the charts from the intergenerational report – to be released in full on Thursday – showing that, under its currently legislated policies, it will never return a budget surplus, in fact that Australia has no chance of returning a budget surplus in our lifetimes.
The new treasury secretary (John Fraser), the previous treasury secretary (Martin Parkinson) and the treasury secretary before that (Ken Henry) have all made the case for structural changes to the budget – reductions in recurrent spending and changes to taxation, and – successive treasurers have agreed with them.
Successive oppositions have opposed even modest changes. The Coalition, in opposition, described Labor’s plan to freeze the threshold at which family benefits stopped being paid at $150,000 as “class warfare”. In government it proposed to reduce the same threshold to $100,000 in order to “end the age of entitlement” and deal with a “debt and deficit crisis”. Labor, as the government repeatedly reminds us, has voted against savings it had itself proposed in government.
But it is unlikely Labor could have maintained its opposition to over one third of the savings proposed in the Coalition’s first budget if the plan had not also been so comprehensively rejected by the public because the burden of the changes fell so obviously and disproportionately on the poor.
Now the government has abandoned many of those savings – it finally ditched the $5 cut to the Medicare rebate just this week. And it is spending money as it tries to revive its political fortunes (despite the fact that spending as a proportion of GDP remains well over Howard-era averages). Another $200m over the forward estimates on defence pay was announced on Wednesday and it will need billions to make sure its upcoming childcare package does not leave families worse off. Any savings it makes in the next budget will be to offset this spending.
There are two ways the treasurer, Joe Hockey, could try to make the long-term objective and the short-term politics add up. He could take the head-against-a-brick-wall approach and just point to the (also already leaked) graph showing that if everyone just changed their minds about his last budget, a surplus would be possible by the end of the decade.
Or he could take the back-to-the-drawing-board approach and a calmer, more consensual approach to changes after the taxation and federation white papers.
That, of course, depends on the government overcoming the damage its first budget has done to its chances of re-election.
