Tom Burton: Joe puts away the cigars

By Tom Burton

May 12, 2015

Gone was the hubris of early government and in the first ever dual Budget lock up press conference, Treasurer Joe Hockey and Finance Minister Mathias Cormann were nervously hoping their business as usual budget would offend few — and please enough — to lay the path for the political recovery of the government.

This budget reflects a government that has learnt a lot since last year’s heroic fail.

Gone is the hairy chested chase for a surplus, with deficits now slated for the next four years.

Gone too were the political surprise dynamite sticks of GP taxes and $100,000 tertiary fees, replaced with a much more nuanced –middle class winners and some wealthier losers — set of measures.

The rejig of child support and complicated pension and family benefits programs was the work of professional public servants who know what they are doing. Classic trade offs in the heritage of program design that marks the best of Canberra’s bureaucrats.

So too the nicely crafted digital transformation program, herding together some of Canberra’s biggest and most bolshie agencies into an impressive first tranche program to drag the Commonwealth into the digital era.

The business incentives package smelt and felt like an election package. Hockey was ebullient and genuinely bullish about the prospects for growth.

But if the Reserve Bank’s much more pessimistic view about business investment and household income growth is correct, this will be but the first economic stimulus packages.

In a low interest rate world, markets are chasing yield and corporates are reacting by paying out dividends to bolster their share prices, rather than investing.

Hockey’s now far more modest fiscal consolidation program is premised on a solid return to growth, with some decidedly optimistic real GDP forecasts projecting growth to return to the norm over the next few years.

‘What is the norm?’ is the big question. The fact is we are in unchartered waters, with yields and interest rates at lows not seen by policy makers for a generation, making the economy a difficult beast to predict.

The reality is the Australian economy is being powered by the real estate and construction booms of Sydney and Melbourne, with a majorly over priced stock market also playing its part.

Last weeks Victorian state budget suggested its stamp duty bonanza has run its course, with the first price falls in Melbourne apartments, a warning the music is going to have to stop at some time soon.

And when the Governor of the Reserve Bank recently declared Sydney’s real estate market “exuberant” that should have been pause for cause for many.

Instead Hockey and Treasury are predicting more good times, forecasting very solid household dwelling investment through to 2017.

With Treasury admitting business investment is still sitting on the sidelines, it is what best could be called a Hail Mary budget — with Hockey praying his beloved green shoots will indeed take hold. We will see.

Meanwhile the government’s tenure is very dependent on this budget not buying it any more political trouble. A messy few months will almost certainly see the wannabes shaking the leadership tree.

If that is the case, say good-bye to the bigger reforms around the Murray banking report, the Harper competition reform and the tax and federation reform initiatives.

We saw how one badly crafted budget punctured the tyro government’s reform agenda and almost led to the end of a Prime Minister.

This budget is far cleverer. Lets hope Joe and Mathias have also learnt not to smoke in public.

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