Government’s tend to spend their way out of trouble. This Government is in trouble, if opinion polls are anything to go by. Indeed, it was in a fair degree of trouble from the day of the last election when it got fewer votes than Labor, but got them in the right seats. As a result, the laudable fiscal rectitude that was the hallmark of the Government’s first term has been steadily eroded. Last night’s Budget saw a further erosion. Treasurer Peter Costello says he has brought in a surplus of $2.8 billion. This is a smokes and mirrors surplus. Mr Costello has included in his figures the $2.6 billion the Government will get from selling extra mobile-phone spectrum. Arguably, this is an asset sale. Without it, it would have been a balanced budget, or when other fiddles are included, it is a deficit Budget. Mr Costello has conveniently increased his estimate of growth and hence revenue to beyond what is tenable.
And this means more money to spend on vote buying. The Government is doing what it accused its Labor predecessors of doing: selling the silver to pay the grocery bill. And it is doing it at precisely the wrong time in the economic cycle. Australia is at the high point of the economic cycle. Now is the time for a real surplus Budget in preparation for the inevitable economic downturn ahead as the business cycle takes its course.
Mr Costello is being far too optimistic. The Australian dollar has taken a battering. Four interest rate rises in the past six months have done nothing to stop its fall and neither the Reserve nor the Government have the nerve to test their free-market philosophies by letting it fall. And the GST is bound to add to inflation.
As for detailed measures, the extra health funding has been misdirected. The extra $560m to get extra doctors in the bush is a huge price to pay for probably very little improved health outcome. It is all very well comparing city-bush numbers for GPs per head, but parts of many cities are over-supplied with GPs. It is a bribe for rural votes. The extra money for specialists to travel to the bush is probably equally misdirected. In medical specialties, particularly those involving hi-tech diagnostics, it is better to bring the patient to the doctor than the doctor to the patient, or should that be voter.
The $560m was just part of a $1.8bn rural and regional package. It could be a high risk strategy. It might go some way to appeasing alienated bush voters who turned to One Nation last election, it appeasement because of alienated bush. However, there are far fewer bush seats than city seats. The danger for Government is that by giving so much to the bush it might alienate people in the cities. People in the cities might well see that they do not have the clean air and water of the bush, nor the congestion and traffic. They also have far higher housing costs and often higher costs stemming from higher city wages. This Budget might go more to increasing the tension between the bush and the city rather than harmonising it.
The new spending on biotechnology research is welcome, but at $30.5m it is pitifully small compared to the vote-buying in the bush.
The tightening of means tests and eligibility requirements for welfare will be popular and could be worthwhile in monetary terms. Mr Costello hopes they will pick up $212 million in four years. But the success of the measures will only be shown if the number of long-term unemployed falls and they carry a risk of social failure that will not be worth the money saved.