Webdiary - Founded and Inspired by Margo Kingston

This thread is a work in progress. This evening and tomorrow, as time and energy allow, the moderators will put up excerpts and links to various leaks and predictions about Budget 2008. We will also, in due course, do likewise to Wayne Swan's budget speech, and to the commentary on it. Meanwhile, if anyone wants to start discussing budget-related matters, go for it...

UPDATE 1:00am, 13 May 2008

The first story to land, with an insinuation that the Murdochs picked up a copy from the printers, is of a revamp of some of Centrelink's more draconian practices. Goodbye work for the dole, goodbye three-strikes-out. Hello instead to greater incentives to job networks, greater assistanc to single mothers sent back to work. Goodbye to the baby bonus for those making more than $150 grand a year, despite Brendan Nelson's chiding that all babies should be treated equally. Will the expectant mothers of Point Piper, Toorak and Springfield have tear-stained pillows tonight?

Maybe they will. The cognac may not flow so freely this year, and perhaps the upgrade to the latest Beamer may have to wait if the increased tariffs on luxury cars hurt too much.

Nassim Khadem and Michelle Grattan report in The Age that

Means testing and tax rises will hit the rich, but battlers will be protected as the Government cracks down on inflation in a bid to avoid fresh interest rate rises. Election promises, most notably the $31 billion tax cuts package, will be delivered. The surplus for 2008-09 will exceed $17 billion and could be more than $20 billion. Around 650 cuts and redirections of spending will yield billions in savings.

It is to be hoped, though, that some of the budget revenues are better calculated than the benefit of the tax increase on "alcopops", the premix that has become the beer of many of the newest alcohol consumers. Forbes quotes an expectation of $500 million annually. But will the kiddies, who were enjoying one and a half drinks for the price of one, stick with the pretend stuff (have a look at a label sometime and see how much of the emblazoned spirit is in the bottle) or will they go to the true hard spirit?. If Treasurer Swan hasn't factored such a simple possible decline in income into his sums, does it mean he hasn't done enough homework elswhere?

On a more serious note, it was disturbing to see Nicola Roxon's blase attitude to the Rudd Government's leaking of Budget elements on the 7.30 Report overnight. She described the government's media management practices as "a bit like sausage making, some things you don't want to see behind the scenes"

So, what's for breakfast?

UPDATE 12:04pm, 13 May 2008

In a speech to the annual Australian Davos Connection Future Summit in Sydney on Sunday 11 May, Kevin Rudd warned that Australia is in danger of "waking up with the mother of all hangovers" because of the Howard government’s failure to deal with "a multitude of economic weaknesses" hidden by the mining boom. In a speech that outlined the strategy of this evening’s budget, Mr Rudd said:

The Government’s first budget, to be delivered on Tuesday, is one step in our program to transform the future competitiveness of the Australian economy.

For too long budgets have been an annual political give-away in which the government of the day serves up an array of handouts and quick fixes. That is no longer good enough. If Australia is to compete and succeed in a rapidly changing world we need a long-term approach to fiscal policy.

That is why I have said that this Budget won’t be another “one year wonder”. It will be a budget that sets a platform for long term growth. It will begin to prepare Australia for the future. It will build a strong foundation of economic stability that will benefit Australia for years to come.

That foundation is based on four principles. Our first priority is to build a strong economy through responsible economic management – a strong economy that also delivers for working families. Second, we are committed to honouring our commitments to help working families under financial pressure. Third, we will deliver on our commitments to prepare Australia for the great challenges of the future – acting on areas of long-term government neglect: in education, health, infrastructure, climate change and water, and the rise of India and China. Fourth, we will plan and provide for our nation’s long-term defence and security needs in a rapidly changing environment. These are the principles and priorities which have guided us in this Budget process, and they will be reflected in the outcomes on Budget night.

The Budget is a first step in the Government’s broader long term economic strategy. It is an opportunity for us to make a start on our long term vision for the nation.

UPDATE 2:00pm, 13 May 2008

Former Treasurer Costello has pushed Malcolm Turnbull out of the spotlight by giving a rare interview this morning.

[ABC extract]

He described Mr Swan as the "luckiest Treasurer in the world", saying he inherited an economy that is stronger than the major developed nations.

"We left a surplus of $15 billion, it would have been revised up closer to $20 billion," he said.

UPDATE 9:29pm, 13 May 2008 - an unashamed steal from Crikey - but then, I have been a loyal subscriber for years and years...

Bernard Keane: The first Swan budget -- how it rates The first Swan Budget does not take the promised meat-axe to Government spending but may be nearly enough to convince the Reserve Bank it is serious about restraining demand. Despite the big $21.7b surplus, this Budget spreads the pain across as many people and as few headlines as possible, but manages to slow the remorseless growth in Government spending since 2004.

…

But the real cuts are in the minutiae of the agency expense measures across the breadth of Government activities. The majority are relatively small programs where the pain will be muted due to the size of the sectors involved. The Advancing Australia and National Food Industry Strategy programs in AFFA. Advertising cuts. The previous Government’s PC filters program. Apprenticeship schemes. The Realising Our Potential education programs. Green vouchers for schools. A delay in the start of digital radio.

All these have kept real growth in spending to 1.1%. I despondently predicted 2.8% last week so have to acknowledge a solid effort, although it’s not in the league of Peter Costello’s first two budgets. Problematically, however, spending is forecast to rise back to 4% next year. While this partly reflects the impact of pushing a number of big expenditures in 2009-10 – spending falls back in 2.1-2.2% in the out-years – it suggests that Lindsay Tanner’s razor gang needs to keep chipping away at the Howard legacy of profligacy.

On the revenue side, a range of tax concessions and rebates will be removed in areas such as crude oil excise, FBT exemptions, depreciation and capital protected borrowings. Together with the alcopops excise increase, the luxury car tax increase, and an old-fashioned rise in the passenger movement charge, this will yield an extra $2.4b next year and more in outyears. However, that is dwarfed by the $8.8b increase in forecast revenue growth achieved in spite of the collapse of capital gains tax revenue.

The vast surplus racked up by Swan and Tanner will be directed into three new funds – a new infrastructure fund to invest in road, rail, ports and broadband, worth $20b over two years, an extension of the Higher Education Endowment Fund into a new $11bEducation Investment Fund, and a $10b Health and Hospital fund, all to be managed by the Future Fund. A COAG Reform Fund (more correctly, a State Bribes Fund) will also be set up to channel reform-related payments to the States.

...

Alan Kohler: The Budget that Tanner built

This is more Lindsay Tanner’s budget than Wayne Swan’s or Kevin Rudd’s.

There are no new spending measures, only new savings, and remarkably the Finance Minister has found $2 billion more in savings than Swan and Rudd are spending.

The first Swan/Tanner budget actually reconciles the irreconcilable: the need for fiscal restraint to fight inflation while fulfilling the Government’s election promises and not crunching the economy so hard that it risks exacerbating the coming slowdown.

And it had been done simply by carving into middle-class welfare and cutting out the fat left by John Howard’s profligacy.

When the former Treasurer Peter Costello said at a remarkable doorstop press conference this morning that Wayne Swan is the luckiest new Treasurer in history, he was absolutely right – but not for the reason he meant. It’s because there was so much fat left in Government expenditures that could be painlessly cut away.

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The core of the budget – what it’s really all about - is contained at the back of budget paper No.2 - from page 361 to p.427. Here you will find 66 pages detailing 134 new savings measures, on top of the 46 cuts announced during the election campaign, totalling $1.6 billion in 2008-09.

The new savings total $5.7 billion in 2008-09, 11 dozen of them – big ones, small ones: nip cut slash.

The big picture of this budget is that the Rudd Government has announced $5.3 billion worth of new spending for 2008-09 leading up to it, and has now announced savings of $7.3 billion, increasing the surplus by $2 billion.

In addition to that there are a total of $5.4 billion in unexpected increases in tax receipts and other windfalls since the pre-election fiscal outlook (PEFO) that was issued by Treasury during the election campaign last year.

As a result the $14.3 billion surplus forecast in the PEFO has now turned into a $21.7 billion surplus ($14.3 billion plus $2 billion plus $5.4 billion).

So whereas the Howard Government spent every cent of the commodities boom windfall, the new Government has so far put it all into the bank, and added another $2 billion to it by cancelling some of its predecessor’s spending.

...

Robert Gottliebsen: Labor's attack on tall poppies

Treasurer Wayne Swan and Finance Minister Lindsay Tanner have unveiled a secret weapon to maul the finances of higher income families – and all in the name of tax "fairness". And their 2008 attack is only the first round because I fear there is more to come.

A large number of middle income families negatively gear property or shares and/or salary sacrifice into superannuation or into reportable fringe benefits with two objectives in mind. The first is to save tax and second to enable their families to receive education, and other allowances. It is also sometimes used to lower dependency payments. Losses on investments can have a similar effect

The tax deductibility of negative gearing and salary sacrifice has not been touched in the budget but from July 1 2009, in assessing means-tested income, the amounts salary sacrificed, the negative gearing benefits, the fringe benefits and the investment losses will all be added onto income. And so the new income test for the family tax benefits is to be calculated on the increased income. The same applies to education and many other allowances.

The caps on family benefits are stated as being subject to a $150,000 "income" limit, but for people with less than three children the cut off point is less than that and will be less again once the new definitions are used.

From July 1 2009, the medical benefit surcharge thresholds of $100,000 for singles and $150,000 for couples will be defined using the new calculations of income – effectively for many people the thresholds will be lowered.

There are other attacks on middle income Australia including subjecting "meal card" arrangements to FBT (where the employer pays for meals consumed by the employee on the premises as part of a salary package) and removing FBT exemption for work related items mainly used for private purposes such as laptops plus other FBT tightening moves. All of these items will cause major reviews of many current salary packages.

The second round of middle income blows will start with school fees. Middle income families in Victoria are going to be hit with much higher private school fees as a result as the big teacher pay rises in the state system spread to private schools, especially as there does not seem to be any provision in the budget for increased help to private schools to help pay for the rises. Those teacher pay rises are certain to quickly spread to other states and will present a major impost on those sending their children to private schools. This will multiply the effect of the reduction in Government help.

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The (mainstream media) commentariat: early reactions to the Budget

An hour since the journalists were unleashed from the Budget Lockdown, and the early reactions are trickling in. Here's an early roundup.

Shaun Carney, The Age: "Those who were hoping for a major redirection of the economic and social course of this country under a new government will be disappointed. This budget reflects the gradualist nature of the Prime Minister, the Treasurer and most of the Government's leading figures. It's fair to say that the budget represents a tentative step towards a very mild form of modern social democracy, built on many of the precepts of the previous government, such as personal choice when it comes to the public/private split in health and education."

Paul Kelly, The Australian: "The budget reality dismisses the phoney symbolism of recent days. It is not a Robin Hood budget. It is not an attack on middle class welfare. It does not involve a major dismantling of Howard government programs. This trade off between beating inflation and backing working families will make or break this budget. It is highly optimistic. It is faithful to Labor's political pledges but tests the economic proposition that working families can be compensated at length from the inflation struggle."

Samantha Maiden, The Australian: Wayne Swan’s budget razor for families enjoying middle-class welfare, including the baby bonus, isn’t quite as sharp as it sounds. While the decision to ban the lump sum for the baby bonus and introduce a $150,000 means-test for both the bonus and family tax benefits is likely to capture the headlines, it also remains a small proportion of the $33 billion in savings measures the Rudd Government has announced. A tightening of exemptions for fringe benefits taxes, new taxes on crude oil condensate that will deliver a massive $3.5 billion over four years, increases to taxes on alcopops and a previously announced decision by Labor to slash tax cuts for people earning more than $180,000 delivers the lion’s share of the extra cash.

Colin Brinsden, The Daily Telegraph: The Rudd government's first budget is like going to the dentist. There has to be pain now or the future health of the economy is at risk. And like any dentistry, it comes at a price. Rich families, or those on $150,000 or above, will not like the decision to means test the baby bonus and the family tax benefit part B. The luxury car tax will increase to 33 per cent from 25 per cent and a loophole that governs the taxation of executive share schemes will also be closed. Twelve hundred public servants' jobs are also at risk as part of $33 billion worth of cuts in government spending.

Mark Hawthorne, Courier Mail: WEALTHY families are the losers under the first Labor federal budget in 13 years, with means testing and a tax crackdown helping to build a record surplus and three major new funds for future investment.

Scott Murdoch, The Sydney Morning Herald: Labor has delivered a moderate budget that it hopes will "build the nation" by dedicating spending on health care, welfare and infrastructure while winding back the direct benefits to the nation's well-paid. The first Labor budget in 13 years has maintained the tax cuts promised during the election and will now means-test welfare and the controversial baby-bonus which rises to $5000 from June.

The Daily Telegraph: "The opposition will no doubt point out that groceries and petrol will be no cheaper tomorrow morning than they were before the budget was handed down tonight. But it will be hard for them to punch holes in a budget which delivers a record $21.7 billion surplus - well above most predictions - and still cuts government spending."

Enjoy.

UPDATE 3:06pm, 14 May 2008 - grabs from the Budget 08 section of today’s edition of Crikey

Wayne Gump balances the soft and hard centres (Bernard Keane):

At Crikey we’ve been regularly asking whether the Rudd Government will be a State Labor-style bunch of spinners and shysters who will not lead but manage, and manage at best only competently, and possibly much worse. That question has now been answered – mostly, but certainly not entirely, in the negative. Swan had to get the right balance between a booming resources sector and a global financial crunch. Sure, he could’ve -- should’ve -- hacked into spending by another few billion, but we say that about 9 out of every 10 budgets anyway. The extent to which Lindsay Tanner’s ongoing review process will be allowed to cut the currently forecast 4% growth in real spending in 2009-10 in the next budget will demonstrate whether Rudd and Swan have retained what fiscal rigour they currently have.

Both the Prime Minister and his Treasurer clearly have a State Labor Premier’s terror of unpopular decisions -- but also have more vision and greater commitment to long-term change. In particular, it is clear that the Government’s rhetoric about a new approach to Federalism has real substance. For the first time ever, we have a Federal Government genuinely committed to urban infrastructure, hitherto regarded by both Labor and Coalition Governments as strictly the responsibility of State Governments.

Now, via Penny Wong’s $1.5b urban water initiative and the Building Australia fund, we have a Federal Government ready to undertake infrastructure investment in the places where it is needed most. Stephen Mayne today discusses the financial implications of these new funds, and the Building Australia fund is not without its political risks, as there’s always someone somewhere p-ssed off about new projects. But after generations of the Federal Government confining itself to rural and regional infrastructure as State Governments botched and buggered up our cities, this is a major and welcome shift in Federal focus -- as long as the allocation process can be kept free of political considerations and the intervention of Labor mates.

Swan delivers where it counts (Mungo MacCallum:

Modern budgets seldom contain any real surprises. Their economic significance is more about gathering up the outcomes from the year before and making invariably incorrect predictions about what they are likely to be in the year ahead. But if budgets have ceased to be pivotal economic occasions, they can still be important political turning points, and this applies particularly to the first budget of a new government.

What is expected from the incoming treasurer is a denunciation of the economic vandalism of his predecessor, who has left the place a smoking ruin, and a reconstruction plan that eschews short-term political advantage and stretches well beyond the next election, thus making the return of the government a patriotic duty for the conscientious voter.

Last night Wayne Swan showed that he had read the script, and if his delivery was plodding rather than dramatic, it did the job. Swan made it clear that there was a repair job to be done and that he was prepared to do it. At the same time the $40 billion investment in infrastructure, education and health showed vision for the future and the promise of better things to come. If he can report genuine progress in even one of those fields by 2010 the job will have been done.

Inevitably the gurus of the Murdoch press, who saw the budget as the Great Test for the Rudd government (Murdoch journalists love setting tests for politicians; it enables them to pretend that they have standards of their own), were dissatisfied. But while there was not enough pain, suffering and scorched earth to satisfy the more masochistic of the economic fundamentalists (the ones who complacently accepted the profligacy of the previous government for the best part of a decade) the punters would have felt a touch of the lash as well as the promise of good booty at the end of the race.

They have been enrolled as spear carriers in Rudd’s army, and their loyalty, if not absolutely assured, has at least been enhanced by the process. And that’s what the exercise was all about. Mission accomplished. The real work on the economy can now begin.

Kevin Rudd’s amazing iceberg budget (Possum Comitatus):

Hands up who’s thoroughly sick and tired of reading about how Kevin Rudd is John Howard lite, a bloke who substitutes spin for government activity in those times when he’s not actually doing the big “me-too”?

Finally, hopefully, we can all now put that piffle to bed.

The real Kevin Rudd has always been the Goss technocrat, the strategic policy wonk, the careful, cautious planner ad infinitum who draws policy threads together in a coherent broader tapestry, who melds electoral politics around concrete policy goals rather than wrapping convenient policy goals around base electoral politics. Last night the real Kevin Rudd became so obvious that even the laziest journalist should have been able to see it.

The future direction of health policy is a classic case in point. By doubling the threshold for the Medicare levy surcharge, not only will it start to dismantle the private health insurance gravy train as fewer people get penalised for not taking out private health insurance (becoming an effective tax break for those middle income working families to boot – the electoral politics), but it will to some extent increase the demand on public health resources in the future as a result, particularly the resources of the public hospital system. Yet Rudd has been banging on about reforming Commonwealth-State relations over health since he first achieved the Labor leadership. There’s the explicit threat for constitutional change to allow the Feds to take over hospitals if the States aren’t up to the job to implement reform, there’s the COAG health reform agenda and a bucket of upfront money being made available before the budget and now there’s a $10 billion health fund.

It’s not rocket science to see how it’s playing out – for those that say the budget lacked reform, open your eyes and stop looking at the world through a Howardian prism.

Rudd knows the demand shift consequences of moving the Medicare levy surcharge up the income ladder, he’s banking on at least the first tranches of reform, the low-hanging fruit – be it the increase in aged care beds to free up hospital beds, the construction of GP clinics to take weight off hospital emergency departments and the dozens of smaller front line reforms scattered through more than a dozen documents – to provide the hospital system with the increased capacity to absorb the consequences of this initial reshaping of how private health insurance works in practice. As time moves on, private health insurance will be further reformed with the broader health system as a whole – the scene has been set and the trajectory pretty much laid out.

Too often we all seem to expect reform to come in some big-bang document titled "Reforming Policy X" where we can all follow the flow chart. A sort of idiot's guide to policy change where winners are easily determined and losers are identified in bright red circles.

Undoubtedly there will be some of those in the future (the not quite so root-and-branch tax review springs to mind) but there’s a whole lot more going on in this budget below the headlines and the PR management. We might all need to start thinking in more complex ways on how government initiatives interact with one another if we are to get to the bottom of the deliberate, broader sweep of government policy direction because Kevin Rudd and his government certainly are. The Opposition is certainly not and governments need to be kept under credible scrutiny.

Budget plays Malcolm Turnbull for a fool (Bernard Keane – again):

Earlier this year, on issues like the apology to the Stolen Generations, and the 2020 Summit, the Prime Minister used declarations of bipartisanship to play Brendan Nelson off a break. For a long time, Nelson was wearing the fixed grin of someone who knew he was being treated like a mug, but didn’t have the faintest idea what to do about it.

Now the Government has used the Budget to hand out similar treatment to Malcolm Turnbull.

Turnbull has already demonstrated a willingness to take risks as shadow Treasurer. His whole "what inflation?" routine flies in the face of every credible economist in the country, not to mention the Reserve Bank and Treasury. So the Government gave him enough rope to hang himself with in its pre-Budget rhetoric. Rudd, Swan and Tanner endlessly talked about how tough the budget was going to be, and how unpopular many of their decisions would prove, and Turnbull took the bait, repeatedly warning against substantial spending cuts.

Now the Budget has delivered what Swan termed a "mild tightening" of spending – 1.1% real growth, well below the spending increases of recent Coalition budgets but still not the wholesale slaughter of the first Costello effort. The meat axe was nowhere to be seen – just a rather bloody scalpel which has been used to cut a few programs out of every portfolio.

Turnbull was left with nowhere to go. He’s been played for a mug. So, with nothing else to do, he turned on a dime last night and began criticising the Government’s profligate spending. You get the feeling that another billion or two in cuts and he would’ve been getting stuck in about that, in line with his original strategy.

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Some Liberals are still adjusting to their changed circumstances. One backbencher yelled out "give them back" when Swan last night noted that the surpluses belonged to taxpayers, suggesting the Budget bribe mentality dies hard in Liberal ranks. There’s also press speculation about possible amendments to Budget measures in the Senate. If they have any brains, the Coalition won’t go near that. The Government would love to have a double dissolution trigger up its sleeve.

And we’ll be seeing a lot more of this "politics of envy" rubbish from the Opposition. It’s a ridiculous cliché, dreamt up by conservatives to demonise anything faintly progressive in government taxation and spending policies. Taken to its logical extreme, it means we should abandon progressive taxation and give everyone a set amount of Government payments, regardless of circumstances.

The electorate also reckons it's rubbish, with means-testing having widespread support – and at lower levels than $150,000.

Will the budget remake Howard’s Australia? (Clive Hamilton):

The budget, and the reaction to it, are a good test of the extent to which the Howard Government really did transform Australian society. Have Australians become less egalitarian? Do the middle classes have a new sense of entitlement? Has social justice been killed off?

Although the budget was not a serious attempt to choke off the rivers of revenue that flowed into middle-class welfare under Howard, the new Government had a plan to create the impression that that was what it was doing with its big leaks about changes to the Medicare Levy Surcharge, means testing the Family Tax Benefit Part B and raising the tax on luxury cars.

The Government clearly believes there is political mileage in projecting itself as taking back fairness -- "a Labor budget" the Treasurer intoned -- so they must have had polling and focus group research showing that most Australians felt the Howard Government had gone too far in molly-coddling the wealthiest third of the community.

Last week’s Newspoll results, showing that large majorities favour means-testing, with large minorities favouring it for anyone above quite modest incomes, were a reminder that Howard has been only partially successful in reshaping Australia on the American model. The survey indicated that he had been most successful with those who had grown up under his rule, respondents in their late teens and twenties.