Exclusive: Colebatch’s verdict

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Who would have guessed it? Suppose you told us before the election that an Abbott government in its first budget would push middle-income couples off family benefits, charge them $7 every time they go to the doctor, $5 for every prescription at the chemist’s, and more when they fill their petrol tank – would any of us have believed you?

But that’s what this budget is about. Sure, it takes some whacks at the poor and vulnerable – particularly the young and jobless, whom the government says must “earn or learn” – but they’re not the biggest victims.

Those who will pay for most of the savings in this budget are families who are doing okay, who have their share of medical bills, do a lot of driving – and who thought before the election that Tony Abbott was their kind of guy.

Well, think again. The first Abbott government budget is economically responsible, but politically full of risk, because it turns on his own supporters.

Many of them will be hundreds of dollars worse off every year. Some, pushed off family benefits and facing rising household bills, will be thousands of dollars worse off. That’s courageous, PM.

This budget breaks the Liberals’ election promises on a gargantuan scale. It’s almost as if, having done the numbers, Abbott, Joe Hockey and Mathias Cormann agreed that, since there was no way they could get the budget out of deficit without breaking their promises, they would smash them one after another, like plates at a Greek wedding.

Remember that election, a long eight months ago, and the mantras Tony would reel off to reassure us: “There will be no cuts to education, no cuts to health, no change to pensions, no change to the GST and no cuts to the ABC or SBS.”

Well, last night he kept one of those promises – there is no change to the GST, not yet. But last night’s budget makes it inevitable that that promise will go too.

The one secret they didn’t tell us before the budget is that the Federal government plans to save $80 billion over the next ten years by giving the states less money to run our schools and hospitals.

$80 billion is a lot of money. The states will now have to find another way to raise it, and the only tax big enough to do it for them is the GST: either by removing the exemptions for food, health and education, or by raising the tax rate – or, most likely, both.

The other big surprise in this budget is that, over the government’s first four years, it makes hardly any net savings at all. Add up all the policy decisions made by the Abbott government since taking power, and on their own figures, they save just $4 billion in four years.

Abbott and Hockey have taken a gamble that in the end, Australians want the budget back in surplus, and are prepared to wear personal pain to do so. I hope they’re right, but I wouldn’t bet on it.

Even that’s a rubbery figure: it assumes we can borrow an extra $10.8 billion – which the government’s decisions have added to the deficit this year – without having to pay any interest on it. Step into the real world, and the saving is just $2 billion. If the cumulative deficit over the four years would be $107 billion under the Coalition, as forecast, it would have been $109 billion under Labor. Spot the difference!

Even in 2017-18, when the government’s policy changes will make the budget $7 billion better off, half of that is due to a single change: its small-minded decision to abandon Labor’s goal to lift Australian foreign aid to 0.5 per cent of our national income.

All the other painful decisions in this budget and in the earlier midyear budget update add up to just $3.5 billion of net savings in 2017-18 – in a budget that by then will be spending $467 billion a year.

How come? Well, instead of putting all the money it saved into reducing the deficit, the government has given most of it away to other groups in tax cuts and new spending.

The midyear update cut taxes on corporate Australia by $16 billion over four years, and announced $22 billion of new spending, mostly on roads and the Reserve Bank.

I haven’t had time to go carefully through the 215 pages of spending decisions in this budget, but the government tells us there is $11.6 billion of new spending on roads alone (too much, when virtually none of them have passed a credible cost-benefit analysis.)

It accelerates the purchase of $1.5 billion of defence equipment, and increases defence pensions by $1.35 billion. The two Royal Commissions set up into unions and Labor’s home insulation scheme will cost us $67 million. There’s $1 billion to train more GPs, and $91 million has been set aside to pay all the consultants from the top end of town for their advice on the sale of Medibank Private.

One of the biggest budget savings is the decision to make graduates pay back their HELP/HECS debt sooner and faster. That’s estimated to cost them (and save the budget) $1.2 billion a year by 2017/18 – and by then, the government will pay out an extra $324 million a year to allow full fee-paying students to take out loans on similar terms.

There’s a lot of restructuring of public spending to reflect Abbott’s political priorities. There’s also sensible moves to help speed the transitions he and Hockey want to see, such as offering employers up to $10,000 to give a lasting job to someone over 50 who’s been stuck on the dole.

Politically, Abbott and Hockey have taken a gamble that in the end, Australians want the budget back in surplus, and are prepared to wear personal pain to do so. I hope they’re right, but I wouldn’t bet on it.

Australians don’t like governments that reduce their standard of living, and make it harder for them to make ends meet.

Economically, this is a responsible budget. It charts a course to get the budget back in surplus by around 2018, without rushing it and risking an economic slump. Some will say that’s too gradual, but the reality is that we don’t have a budget crisis, and we shouldn’t pretend we do.

Abbott’s insistence on building roads, not rail, is juvenile – our cities need both – but at least the huge road construction program he plans will give the economy a stimulus in the years when mining investment will be plunging and the car industry closing its doors.

The real risks in this budget are political. Australians don’t like governments that reduce their standard of living, and make it harder for them to make ends meet. But that is just what this budget does.

Take the traditional single-income families. John Howard courted them, and gave them the Family Tax Benefit B in deference to their not-unreasonable gripe that the tax system discriminates in favour of two-income families.

Last night’s budget chopped that benefit in half, limiting it to the first six years of a child’s life. Once your youngest is at school, Mum, the government expects you to go back to work.

The deficit levy has ended up as just a three-year charge imposing an extra 2 per cent tax on all income above $180,000 a year. Few will pay it, but most of those will be Liberal voters. That’s what makes it remarkable, from a government that in other ways is so partisan and tribal.

It’s designed to assure Australians that this budget is not only bold, and economically responsible, but also fair. This will be a tough budget to sell, but it certainly is one of the memorable ones.

Tim Colebatch was economics editor of The Age from 1990-2013.

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