Axe hangs over Morrison’s legacy as government gets serious before budget

Brace for higher costs as fuel excise cut ends

Slashing budget deficits have long been thought of as a Treasurer’s reason for being.

But Jim Chalmers made a show of seeming unfulfilled on Tuesday when announcing a 60 per cent reduction in what had only a year ago been $80 billion in red ink.

The improvement was styled as a temporary coincidence of record unemployment (which reduced COVID-19 payments) and a major gain in royalties (following sky-high commodity prices caused by war in Ukraine).

This improvement of $50-billion or so, Dr Chalmers said, would only stretch so far as a “standard bread and butter budget”.

The Treasurer and Finance Minister Katy Gallagher repeated the word “pressure” 17 times over the course of a 30 minute press conference.

It was an old budget trick of lowering expectations writ large as the government reveals plans to scrape through the budget process now Australia’s financial problems are acknowledged to run much deeper than its cash flow in any given year.

For the minute, though, it’s a cost that will be exacted from the remaining policy legacy of the Morrison government.

True art

Former Treasury official and veteran journalist Peter Martin is a seasoned critic of the theatre that takes place in every federal budget.

“Why would you even hold a press conference one week before the final budget outcome [figures are released]?,” said Martin, a visiting fellow at Australian National University’s Crawford School.

“What he is doing is the standard thing of lowering budget expectations.”

But at a time when the government must avoid spending to keep the overheating economy in balance – or have rising interest rates do that job – there is a real pressure.

“They need to restructure the economy and make way for a bucket load of expenditure,” Martin said.

The government has long been failing to bring in enough revenue to cover the cost of services. This “structural” deficit will only get worse with rising costs in aged care, the NDIS and defence.

As the RBA chief Philip Lowe told MPs last week, the answers are obvious and difficult: raise taxes, cut spending or remodel the economy’s foundations.

Or, perhaps a bit of all of the above.

Line by line

Labor has committed not to raise taxes in this term of government.

But Ms Gallagher was entirely serious about cutting back when she said that all spending announced by the Coalition government in the last budget was now, essentially, in question.

“We are going through a process of looking at all the measures from the March budget,” she said.

“Line by line, we want to be convinced that the spending is quality [ and that] it’s going where it’s needed.”

As usual, the work is being done by the expenditure review committee famed for its marathon meetings of eight hours or longer.

But unusually – and in a sign that the government’s commitment holds behind closed doors – The New Daily has learned that the committee is now convening as much as twice weekly. Taking that much time out of a minister’s diary is no small thing.

It was this body that cancelled an $18 million grant to a physically non-existent charity on whose behalf the Governor-General lobbied.

That clawback was announced only because of a public outcry; other savings measures are yet to be seen.

A new normal

Ms Gallagher is preaching a new style of budget discipline that she says will now have to be considered normal.

Critics on the cross bench have argued the government is in fiscal constraints of its own making including refusing to dump tax cuts that will take $234 billion out of the budget.

It’s a philosophy that has helped the government take a stick to the Coalition’s reputation for sound economic management.

Ms Gallagher revealed $5.5 billion worth of programs included across the March budget, ranging from flood and pandemic recovery costs to a closing the gap initiative for Indigenous disadvantage.

It was sloppy work from an incumbent government that would soon go onto campaign hard against Labor’s economic credibility and honesty.

Slash and learn

Bob Hawke and Paul Keating delivered similar punches to the Liberal Party after the 1983 election after saying they had found a hidden $3.6 billion in debt.

That was a pretext to cut the government’s own spending plans and the aspirations of those on the left of the party.

The Albanese government’s budget body takes a different approach.

Usually ‘razor gang’ committees are composed, by necessity, of only a handful of ministers who operate in secret.

Now, a full complement of nine MPs can sit on the committee. That is larger than it’s incarnations under the Coalition and suggests a collaborative approach.

It is not clear how long they will have to hold the line.

The reality of Australia’s deep budget problems has been acknowledged but the solution, Dr Chalmers hinted, might have to wait for act two.

“I do think we need to have a national discussion about the structural position of the budget, and how we fund the expectations that Australians legitimately have,” he said.

“There are multiple opportunities in multiple Budgets over the course of the next three years.”

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