Budget blues

Confusing, contradictory, courageous, Swan tightens screws, soak the rich, wasteful, too expansionary, will do nothing to prevent rate hikes, leaving the heavy lifting to the RBA, gambling on the China boom, mixed messages, budget fails in tax, skills, a spinmeister's dream, ... so it goes on.

These are the sound bites that have defined Mr Swan's forth budget and the Gillard government's first.

Henry has two fundamental criticisms.

There is no clear narrative - the implied message seems to be old-fashioned Labor politics - we'll tax the well-to-do (people earning over $150 K pa!) to throw money at the battlers and special interest groups.

The budget is far too expansionary at a time when the 'mining boom Mark 2' is building up a massive head of steam.

If the fiscal stimulus of the Rudd government had been far less, and better targeted to genuine battlers and real needs, this budget might now be close to a surplus, and set to build up to the large surplus required in 2012-13 when the mining boom really hits its straps.

It leaves the RBA is a difficult situation. An immediate rate hike can be expected and should be seen as a vote of no confidence in the Gillard government. Lack of an immediate rate hike should be interpreted as providing political aid to Labor, reminiscent to the rate hike during the 2007 election campaign which was a nail in the Coalition's coffin.

The opposition's $50 billion of spending cuts should be reviewed and put on the table with a clear narrative focussing on building a war chest. I use 'war chest' advisedly - we need to establish a sovereign wealth fund, increase (not decrease) spending on defence and allow virtually open door to skilled labor for up to 5 years on temporary work visas, converting to permanant residence after 5 years of being 'responsible citizens' (I define responsible citizen as 'unknown to the welfare agencies and the police but known as steady taxpayers to the ATO').