Most voters will believe that this will be the least of the tax cuts they can expect. And that Labor might even offer them more. (ABC News: Matt Roberts)
Scott Morrison’s third budget will be described in many ways in the next few weeks. But the best way of describing what it is, and what drives it, is as a reflection of the transformation of Australian politics since the Coalition returned to power in 2013.
Gone is all the naïve machismo of the early Abbott-Hockey period, with the belief that, if you just follow the formula pursued by the Howard government in its early years — lots of big painful cuts in the first year or two — all would be well.
Gone, too, is the fixation about debt and deficits. And gone is the hangover of the global financial crisis in the budget’s figures.
This is a budget that is almost wholly and solely about tax — or more accurately, tax cuts. No-one sees it as a budget of profound tax reform.
Highest spending levels since Gillard
For all intents and purposes, the Government has done nothing to either cut spending or increase it in this budget.
Mr Morrison was making lots of noise on Tuesday night about returning the budget to surplus and about how net debt is peaking in 2017-18. But any substantive improvements are still a long way away, in some cases close to a decade away.
But the reality is that government spending as a percentage of the economy will jump to its highest levels since 2014 in 2018-19 — and grow in real terms by 3.1 per cent — the highest level since the last year of the Gillard Government.
After that, it falls away over the next three years. But there is no great ambition attached to this — just the impact of the economy on reducing proportional spending.
And the Government has refused to have a formal target for spending, as it has noisily adopted one for tax.
Ask Mr Morrison why and he shrugs his shoulders and says, “have you met the Senate?”
So, unwilling to take on the Senate to pass big spending cuts, the Government has simply passed on that and will rely on the economy to improve the budget bottom line.
It has done quite a lot of work on the revenue side of the budget, however, to help meet the cost of its tax cut package, trimming and cleaning up tax breaks like the R&D tax concession and measures to deal with the black economy.
Spotlight on personal income tax cuts
The net result in political terms is that all the budget spotlights are on the Government’s personal income tax cuts, which are designed to give all taxpayers a sense that there is a robust plan for tax cuts even if it might take a long time to “trickle up” to high income earners.
The robustness of the tax plan stems in part from the fact its tax cuts are so politically unobjectionable that it is hard to believe they will face any significant Senate road blocks.
They are aimed squarely — but widely — at middle Australia, so most voters will believe that this will be the least of the tax cuts they can expect. And that Labor — with its suite of other forms of new taxes — might even offer them more.
The budget appeases the Coalition base with measures like the extension of the instant asset tax write-off, and the expansion of ageing at home care places.
And it leaves room for the Government to make further decisions between now and the election if Labor seeks to outplay it in terms of election promises.
For now, the Government appears to be spending only about half of the revenue boom it is enjoying as a result of an improved economy and gets the reward of looking like it has not been too irresponsible in a pre-election budget.
But it has left its potential power dry to announce new spending — partly built on the possibility of even further improvements in the budget, if the election becomes a spending race.