A Vainglorious PM’s Bankrupt Budget

For the past few weeks in Canberra, Prime Minister Malcolm Turnbull has been congratulating himself on how well the budget has been received. No one in the Coalition party room has yet chosen to contradict him, but that doesn’t mean he’s right.

In the wider community, the budget has been a non-event because there was nothing much in it for voters: neither wins nor losses. The handouts were all for vested interests: public schools, doctors, and the states. The new taxes were either delayed, in the case of the Medicare levy; or imposed on everyone’s favourite villain, the banks.

Among convinced Coalition supporters, though, the budget has been worse than a failure; it’s been a betrayal. Liberal Party supporters and donors at the traditional budget night fund-raisers were all shaking their heads in bewilderment at a Labor budget delivered by a Liberal government, with big new taxes, big new spending, and big new bureaucracies.

As a policy U-turn, this budget is the Australian equivalent of one-time UK Prime Minister Ted Heath’s 1972 about face. His Conservative government had been elected two years earlier promising to cut government spending, end business bailouts and deregulate the economy. Faced with unemployment hitting a million, Heath massively increased health and education funding, nationalised failing businesses and introduced price and wage control. The Turnbull government’s U-turn has not been prompted by anything as serious as a deteriorating real economy; merely by adverse polls and a recalcitrant Senate.

Still, it is a historic watershed. Once, the Liberal Party stood for lower taxes, smaller government and greater freedom because it fundamentally believed that individuals should be encouraged to take more personal responsibility for their own lives. It was the Labor Party that stood for more spending and more intrusive government because it believed that this was necessary to deliver greater social justice. Now there is a Big Government party and a Bigger Government party. Once, the two major parties wanted to move in opposite directions; now they are moving in the same direction, only at different speeds.

I think the economics of this budget will be poor. The small-business tax cuts should modestly boost jobs and growth, but this is overridden by the mixed message of the bank tax and the draconian new inquisition into bankers’ behaviour. Bankers whose every step is being watched by officious bureaucrats are less likely than ever to back entrepreneurial flair.

For all Treasurer Scott Morrison’s boast that the budget delivers the lowest spending growth in 40 years, there is $15 billion of new spending over the forward estimates. And the return to a (wafer-thin) surplus four years hence is based on very optimistic assumptions about increased tax receipts that are highly unlikely ever to be realised.

But the politics of this budget will be even worse. The government said that it was a “second-best” budget because the best one wouldn’t pass the Senate. As the fate of the 2014 budget showed, the Senate will not pass tough savings without a clear election mandate – but that doesn’t mean that it won’t change a tax-and-spend-budget as well.

Labor will furiously play the politics of the 2017 budget. Of course it’s inconsistent to propose a Medicare levy to fund the NDIS when in government but then to oppose it in opposition. But no one in Labor cares about consistency provided they make the government look confused and impotent; while the Senate crossbench can be guaranteed to support the politically easy measures but not the hard ones.

Hence I can’t see the federal Coalition getting any medium term poll boost as a result of a budget that makes it look unprincipled as well as impotent.

It could be said that the Turnbull government’s U-turn reflects the centre-right’s general abandonment of free market economics. The US Trump administration has abandoned the Trans Pacific Partnership free trade deal. The British conservative government under Theresa May has abandoned Thatcherism. There’s no doubt that voters in many western countries (including Australia) are feeling let down and abandoned.

Since the Global Financial Crisis, real wages have hardly risen and asset price inflation has made it harder for the virtuous poor to get ahead. Factories opening in China but closing in the West has been good for consumers but bad for western workers. Naturally, when times are hard, voters seek protection from government, but that still doesn’t justify government policy that makes a bad situation worse.

Economic reform has to be more subtle than the short-sharp shock that the 2014 budget sought to deliver, but it’s no less needed just because it’s unwelcome. The budget’s cash splash is not designed to produce better schools or better medical services; it’s simply to appease powerful lobby groups and avoid future scare campaigns.

There’s not even the pretence that the bank tax is good policy. It’s just the cash grab that’s least likely to be unpopular with voters.

Post-budget, government ministers have been attempting to rally Liberals with the observation that nothing could be worse than a Shorten government. It is indeed likely that the next Labor government will tax more and spend more. But my sense is that many Liberal voters are now looking to the next Coalition government rather than the current one. Sure, supporting the Turnbull government might keep out Labor if Shorten-Albanese leadership tensions can be fanned but it won’t bring the Liberal Party back to its economic senses. “The alternative would be worse” is hardly a rallying cry, especially if the status quo is such a disappointment.

Politics is always a contest. It’s true that successful politicians pick the issues on which to fight, so Turnbull has opted to avoid a fight on schools and hospitals. It’s just that Labor won’t let him plead me-too on social spending any more than a savvy Coalition would let Labor get away with me-too on border protection. By capitulating as dramatically as he has, Turnbull has simply deepened the question marks over his own political character and trashed his party’s brand. Is there anything at all that he really stands for or would really fight for other than his own position?

That position has to be increasingly insecure. Unwisely, Turnbull cited losing 30 Newspolls in a row and the lack of an economic narrative as justification for deposing a democratically elected first-term prime minister. So far, the Turnbull government has been behind in 13 consecutive Newspolls with no lift in sight. And the government’s economic narrative hasn’t just been obscured by political static; after years of preaching fiscal prudence, it’s been turned on its head by a tax-and-spend budget.

Well before his Newspoll losing streak hits 30 (probably early next year), Turnbull will have lost any remaining authority.

The question is whether he’s replaced by his own party before he’s replaced by the people at the next election. It’s unlikely that the Liberal Party will walk calmly to defeat. It’s not in the nature of politicians to face political death with equanimity. Even John Howard, arguably the greatest Liberal after Robert Menzies, came close to being toppled in the lead up to the 2007 election. Given the way he came to office, Turnbull will find it hard to demand loyalty from his cabinet or his backbench.

Liberal MPs are likely to wait a little longer before deciding that Turnbull is unsalvageable. But once they come to that conclusion, canvassing of alternatives will begin in earnest. Foreign Minister Julie Bishop still thinks that she has prime ministerial class, but few of her colleagues do. A deputy can survive the defeat of one leader but to outlive three smacks of putting self-interest before duty.

The same problem afflicts Scott Morrison. He ostentatiously cast his party room ballot for former Prime Minister Tony Abbott while urging his close allies to vote for Turnbull – and then emerged from the coup with the second-biggest job in government, the treasurership he had long coveted.

Then there’s Peter Dutton.

Dutton was an indifferent health minister but has been a very strong border protection minister. He’s also the government’s steadiest Question Time performer. Still, assuming the prime ministership would be a huge ask.

That leaves Tony Abbott. The longer the Turnbull government lasts, the better the Abbott government looks. At the time, the 2014 budget seemed a political albatross. Now, it shows that Abbott was not afraid to make the tough calls for our country’s sake. Abbott managed to rack-up a range of important achievements.

Stopping the boats was supposed to be impossible (it would even provoke armed conflict with Indonesia, Kevin Rudd claimed), but Abbott did it. It’s conventional wisdom that no tax is ever repealed, but Abbott scrapped both the carbon tax and the mining tax. Free trade deals with China and our others big partners had languished for a decade but Abbott got them done within 12 months of taking over. There had been a half century of procrastination over Sydney’s second airport until Abbott ended it. And he responded swiftly and surely to Australia’s changing strategic and security situation.

Yes, all the hysterics who barracked for him to fail would still be there; except, of course, for the internal stalker. Yes, Abbott made mistakes. As he himself has admitted, he antagonised colleagues by scrapping first-class overseas travel and banning the employment of spouses and children in MPs’ offices. He was too quick to retreat on amending Section 18C of the Racial Discrimination Act. He never anticipated the furore over knighting Prince Philip. But none of these mistakes would have been so politically dangerous had there not been an implacable rival.

Journalists love leadership stories but the big question is less who leads the Liberal Party than what a Coalition government might do to win the next election. Abbott has clearly been using his sabbatical on the backbench to ponder this question. He’s called for an end to subsidies for renewable energy to take the pressure off power prices and a big slowdown in immigration to take the pressure off housing prices. There can be no new spending, he’s said, other than on economic infrastructure or national security, if budget repair is to continue. His most interesting proposal has been to run a referendum on turning the Senate from a house of rejection to one of review at the same time as the next election.

All of these proposals would set up fights with the Labor Party in areas where voters are likely to break the Coalition’s way. It’s conventional wisdom that referendums nearly always fail, especially when there’s no bipartisanship. But after a decade when governments have struggled to implement their agenda, why wouldn’t the public warm to a proposal that ends the gridlock?

Even with the barest of majorities, a big-spending union campaign against it, and the loss of most of their seasoned backroom campaigners, the next election is potentially still winnable for the Coalition with a leader who knows how to fight.

Abbott wouldn’t waste time settling scores inside the party although, presumably, both Turnbull and Bishop would go. With good candidates, their seats would be winnable even at by-elections. Abbott would refresh the team, get legislation quickly into the parliament to set up a contest, reassure voters that no existing beneficiary and no existing employee would be worse off under the Coalition, and campaign relentlessly on Labor’s major weakness: Bill Shorten’s inability to stand up either to the unions or to the Greens.

Someone has to provide leadership to a country that’s drifting. At present, both big parties are promising to spend money we don’t have on measures that would do little good. As the differences between the Liberal Party and the Labor Party lessen, the rhetorical volume increases. The more Turnbull shouts at Shorten across the dispatch box, the less convincing he looks. Replacing Abbott had massive transactional costs. Replacing Turnbull would have far less, especially if it were to restore the person who should never have been removed.

Ross Fitzgerald is Emeritus Professor of History and Politics at Griffith University and the author of 39 books, including the sexual/political satire Going Out Backwards: A Grafton Everest Adventure, which was shortlisted for the 2017 Russell Prize for Humour Writing