FEDERAL BUDGET 2012: Expert reaction

Labor has made a $5 billion pitch to true-believers with a $1.5 billion surplus, cash hand-outs and tax breaks for low- and middle-income earners in the federal budget.

And the opinion-makers are on the march. As the Canberra pack emerges blinking from the lockout, brandishing their instant verdicts, we’re steering clear of the professional pundits and heading straight to the academic experts.

What will this budget actually mean – for higher education; for parents of school age children; for foreign aid; for complementary medicine; for company tax? What does it tell us about the political fortunes of the Gillard Government?

Our panel of expert reactions will be updated throughout the night as responses come in.

Michael Rafferty, Senior Research Analyst, Workplace Research Centre at University of Sydney

What you’ve got with this budget is an attempt to address some long-term issues with massive redistribution away from working Australia to the rich. And this budget is rather a token gesture towards dealing with that. The continuing theme of the budgets of the past 15 years has been tweaking distributional issues between high-income working people and low-income working people, but actually doing nothing about redistribution between the owners of capital and the people that work for capital.

This budget is about some slight income redistribution. That income redistribution is not even going to touch the Clive Palmers and Gina Rineharts. Without getting too ridiculous, it’s sort of like Putin-light. I do believe that if you look at Russia, you actually see oligarchs in the raw, in Australia we have rentiers in the raw, or slightly raw — people who have a lot of money. And despite what Wayne Swan has said in the past, he’s actually done nothing to change Clive Palmer’s revenue streams or Gina Rinehart’s revenue streams. Their incomes or their net wealth can grow by a billion dollars a year, and nothing happens to their tax treatment.

What’s being missed in the political debate is that even a budget like this, which is supposed to be a battlers’ budget — really that’s just a rhetorical flourish which covers up for the massive redistribution from working Australians to the owners that’s occurred over the past decade or so.

John Wanna, Sir John Bunting Chair of Public Administration at Australian National University

I think it’s a peculiar budget. It’s got a lot of reigning in, to bring back that $44 billion deficit. It’s very optimistic on the tax revenue increases of $39 billion, which would appear to meet most of it, but that an optimistic thing, assuming that the economy will pick up. But it’s also letting a lot out, particularly over the longer term.

A lot of the announcements were four to five years out, commitments in the tens of millions and the hundreds of millions rather than often in the billions. So there’s a smaller amount of money going out, but it’s over a long time frame. Now when governments are talking about a five-year-long time frame, they’re talking about probably across two parliaments, so that doesn’t necessarily mean anything is going to happen this year – which is probably what Swan is hoping for. Unless revenues pick up drastically, they’re probably not going to start until in 2013-4 budget year, or even longer.

There’s a huge amount of deferred spending. The things he announced in the budget that were sweeteners, relatively small investments in health and disability, but over a relatively longer time frame than some of it was repackaging.

There were times in the benefits of the boom, back with the benefits of tax and they’ve decided to not challenge that. That’s saving them $5 billion and they’re spending about $3.5 billion of that on lower income earners.

Basically, anyone on less that $60,000 is doing reasonably well in terms of the cash benefit or some additional income that they otherwise wouldn’t have had, depending on how many children you have. If you’re above $60,000, you’re probably not getting that much out of this budget at all. Other than what you’re already getting out of the carbon tax plan, which goes a bit higher, it goes up to around $120,000-$130,000 per family income.

Chris Richardson (Access Economics) said business will be a bit cranky that some of their higher income rorts were being targeted, like the living away from home allowance.

As an irritant, I think they’d be upset about the company taxes coming down and there’s no indication of that happening. They’d be pleased with the government’s economic figures though. Low unemployment, reasonably good investments, retail sales are reasonably good, GST is a little bit down – but not a lot. Treasury is talking about growth returning to trend – they’d be quite happy with that if it transpires. I don’t think they’re going to be worried about high-income tax on high-income earners, because unless you’re salaried, you’re probably not paying that if you’re in law firms or executives, or family trusts you’re probably not paying that, so that’s only raising a billion dollars and that’s probably people in the public service on high salaries and that’s a relatively low percentage of people.

Jakob Madsen, Xiaokai Yang Professor of Business and Economics at Monash University

I’m in strong favour of a surplus. There are two reasons for that. The best way to avoid a financial crisis is to have a very tight budget, so you can do plenty of cuts. If you look at Greece and Spain, they were very irresponsible during the good years. And when they were down, they didn’t have a penny to finance the deficit. And that’s exactly the situation we want to avoid.

It’s very important to have a surplus. The second reason is we are going to have demographic change. Our population will be ageing. That means there will be a very strong increase in spending for pensions; the revenue from those taxes will decrease. We need to prepare for that situation. The only way to do that is to do it now, while the going is good.

It’s a good budget, but I’d hoped for a better budget. The government is too optimistic about crucial assumptions that are underlying their budget. The most important assumption is about how much the Australian economy will grow. If the economy is not growing, then taxes will not grow. And if the economy is expected to increase over 3% per year, then one assumes revenue will increase dramatically. I think that is a bit optimistic because there are several factors that indicate that the economy is not going to be strong this year or next year.

There are two important things here. When one forecasts, we always have to look at the banking sector and the housing market. The housing market has been going down for the last year, and that’s clearly reducing people’s spending. Then we have, in addition to that, banks becoming more reluctant to lend out because asset prices have gone down. People don’t have the same collateral, so banks have become more cautious in their lending.

Then we have the stockmarket, which has not been very good for a long time. It’s been flat for a long time. Clearly, that’s putting a cut into the revenues of the government, but also points to reduced investment and spending.

Bob Gregory, Professor of Economics at the Research School of Social Sciences in the Australian National University

The main issue to my mind is how difficult the situation is in framing this budget, in that the budget really turns on the economy doing much better than a lot of people now think. There’s evidence that Europe is starting to turn down a bit; there’s evidence that China is slowing up a bit.

The economy doesn’t look anywhere near as strong as it did two years ago, when the Government first committed to a surplus, so one has to be edgy about taking so much money out of the economy.

The second point is that within the budget itself, I thought the reallocation of expenditures was quite good, in that it does seem to me to be going in the right direction.

I think letting the income tax cut for companies go was a good decision. The Labor Government blamed the opposition, and that’s true [that the Coalition would have voted against it] but it is a good idea not to go ahead with that tax cut. I thought cutting defence also wasn’t a bad idea. I thought the balance of the budget was quite good.

The real issue though is whether the economy will do well in the next year and a half because the budget is planned to withdraw money from the economy when it’s going to be tough. I think the reaction of the economy to interest rate cuts is going to be slow. So I’m a little fearful that the economy may well go slow as a result of all of this.

The fact that economic growth is so different in different parts of the economy really does make forecasting quite difficult. A good example is that this year tax revenues are very low. The last time they were as low as this was when the unemployment rate was 10% in the Keating years in 1991 and 1992, and unemployment today is only 5.7%.

Last year’s budget reply by the leader of the opposition was a national disgrace. I thought last year Tony Abbott had the opportunity to comment on the future of Australia and instead he gave a low-quality political attack on the government. I hope that this time around, especially as Mr Abbott is so close to being prime minister, that he treats the reply with the respect it deserves, and we do get a good idea of what lies ahead.

John Quiggin, Professor, School of Economics at University of Queensland

My problem with the budget is more to do with the framing. The actual question of whether they’re in surplus really isn’t a big deal. The problem is the government has made it incredibly difficult to flick the switch back to stimulus if that’s needed. They’ve got a bunch of little coded statements which imply they might do that, but I think in practice, if the economy turned down very sharply, they’re locked into this claim about the surplus and politically they’ll find it very difficult to avoid that.

Another problem is that they’ve tightened more than they need to. That’s reflected in the fact the Reserve Bank is adopting a 50 basis point cut which is certainly an indication that it (the RBA) has a very pessimistic view.

The standard story, which I think is borne out by long experience, is that contractionary monetary policy is incredibly effective. If you want to slow the economy down jacking up interest rates works incredibly well. But expansionary monetary policy famously is called pushing on a string. If you want an expansion you need fiscal policy. That was proved in the financial crisis, it’s been proved through history. The claim that in expansion terms monetary policy is more effective than fiscal policy is impossible to sustain either on a theoretical or a political basis.

Warwick McKibbin, Director, Research School of Economics, ANU College of Business and Economics

There are two things that immediately came across. The first is that this is a budget about wealth redistribution and not wealth creation, and the second is that it’s really about buying votes when you look at the substance of it. That, to me, is very disconcerting.

There are a lot of transfers, which are not investments by the government in the future of the country. It’s actually just transferring money to constituencies that traditionally vote for the Labor party. Now that might be a good idea for them, but I see nothing in this budget which is about investing in Australia’s future.

It’s always responsible during good times to be putting money into savings, so there’s nothing wrong with the idea of surplus. The question is what’s being spent and what’s being cut, and the quality of the spending and the quality of the changes in our revenue base is what’s critical here. Most of what I see is not investments in education or capital, but payments to people to spend on anything they want.

You’ve got the loss of the cut in the corporate tax rate and a big cut in defence, but you are basically giving out a lot of revenue that could be invested in high-return activities.

You see the budget for the year just gone has doubled the deficit from $22 billion to $44 billion. I think the Treasurer’s retirement income should be tied to whether or not there actually is a surplus this year.

That would be a really effective way to stop politicians from promising things that they don’t deliver. For me, that’s the trouble with this political system, in that these guys create these incredible retirement packages for themselves, and they never deliver on what they promise. And I think it’s about time that they get the same sort of packages as executives — if they deliver, great. If they end up not delivering, then they should suffer.

Graham White, Senior Lecturer, School of Economics at University of Sydney

On economic grounds, and on equity grounds, there’s been a lot of talk among media commentators that this is a more traditional Labor budget. If there’s going to be pain from the surplus, there’s been an attempt to ensure that most of the lower-income groups are quarantined from that, to an extent.

So, there’s an equity aspect to that, and economically – although I don’t agree that they needed to go into surplus – I imagine things could have been a bit worse than they were. It seems to me, on balance, that it’s probably as good as you can expect from a government that’s painted itself into a corner politically and has been forced to go for surplus.

Deferring foreign aid and the defence cuts are the big-ticket items. Chris Richardson from Deloitte Access has said that they’ve basically got their savings from the corporate sector and high-income earners – but that’s not quite accurate.

There’s also spending there, so it remains to be seen whether there’s any serious constraint on spending that might add to the softening economy. And, if it does, if it is balanced out by the initiatives they’ve taken in terms of benefits for low-income earners. Had the government gone for the tax cuts and crunched down on the expenditure more, it would be a very different scenario.

Hal Kendig, University of Sydney, Professor of Ageing and Health and Director of the Ageing, Work and Health Research Unit at University of Sydney

The 2012-13 Budget provides a modest but important beginning to the Government’s $3.7 billion committment over the next five years to the valuable Living Longer. Living Better Aged Care Reform package announced in April.

Headline items for “strengthening the aged care system” include $955 million for the new integrated Home Support Program, $670 million for residential care, $268 million for people with dementia, $192 million to support diverse groups, and $256 million to build a new aged care system including the Aged Care Financing Authority and a new Gateway to improve access to services.

A closer look at the figures reveals that genuinely new funding is delayed and largely provided through redirecting existing funding. Growth in services will depend significantly on increased user charges albeit with careful means testing and caps on user costs. Means testing is expected to save $183 million in home care and $378 million in residential care.

An extraordinary $1.6 billion of savings to be achieved from “refining” the Aged Care Funding instrument for residential care will largely fund the $1.2 billion to be directed through the Workforce Compact to improve pay and conditions for aged care workers.

Overall, the Government has moved towards a fairer and more sustainable aged care system directed more to the overwhelming priority of older people for more care at home. There are major “buts” and questions ahead, including the capacity of a minority government to pass the enabling legislation. In the end a budget is a plan rather than an achievement but this one has substantial value for care of older people and it deserves bipartisan support.

Gregory Melleuish, Associate Professor, School of History and Politics at University of Wollongong

It’s a piece of theatre, and it is as much about spin as it is about substance. So the idea is to put a particular message out there. And the message that you are sending out this time is a bit of a mixed message.

On the one hand Swan’s telling us that Australia is a fantastic place, we’re ahead of the rest of the world; we’re not like the Europeans; were not like the Americans. He’ tells us he’s going to deliver a surplus.

Although we don’t know whether he’ll achieve that come September next year. (And) That would seem to indicate that there is a financial discipline involved and that the government is going to financially be in control.

So that gives the message of being in control. And then having done that, I think there is an indication of an entitlement mentality. We are creating all this wealth: “you may not have earnt it all yourselves, but you’re entitled to it anyway”, Swan is saying. “I’m going to hand it back to you and I’m going to give you money and I’m going to give you this and I’m going to give you that.”

Whereas, if we’re creating all this wealth, then rather than handing back now for the present, it might be better to think about how this wealth is going to be used in the future when perhaps the mining boom is over. So it’s an interesting sort of mentality.

It’s obviously a political exercise, where the government is in trouble. It’s had Mr Slipper and Mr Thomson and this is an attempt perhaps to try an gain some traction with the Australian public. The real question is: is the Australian public going to listen or not?

Will they be happy with the direct appeal to the back pocket? Or just exactly how will they react to this. It’s very difficult to say at this point in time. Some people have argued that the Australian public has been distracted by other affairs and may not be listening.

When you look at all the things that are happening in Europe – the direction of the new French president who also says he’s going to spend a lot more. Also what’s happening in Greece where they don’t want any part of austerity.

The thing is, in democracies like ours people prefer to have money spent on them and they don’t like it when governments take the money away. This is just another trick of the government saying “you deserve things”.

Nick Economou, Senior Lecturer, School of Political and Social Inquiry at Monash University

It’s a budget that serves the government’s political purpose quite well and I thought the Treasurer looked very competent when he delivered it. Whether it’s going to have the desired political effect of altering the trend of voter support away from the government, I’m not sure.

The government will have to hope that some of the things it’s done in the budget can impact on the political debate, over all the other things that are going on like the Slipper affair and the Craig Thomson affair.

To that end, given that what they certainly didn’t need was a disastrous budget that looked like it was backing away from doing things for its core constituency, I don’t think that was the case at all.

There were aspects of the budget that would probably appeal to a lot of people, including the idea to try to wind back some of the tax benefits given to the very wealthy by the previous Coalition government.

This Labor government has a slightly easier time of things in the parliament because of the change in the Senate. The last budget that would have been brought down would have been brought down before the Greens got the balance of power.

To use a cliché that’s already coming out: it’s very much a “Labor” budget. Swan tended to use the word “Labor” as much as he could in his speech.

There are a couple of things about the budget that are likely to cause grief further down the track, not for the Federal Government but for the states. They’re talking about an $11 billion decline in revenue to the states.

The state governments are going to struggle because at the end of the day they’re the ones that provide really expensive services.

This article first appeared on The Conversation.