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Flushing the fair go

By Andrew Leigh - posted Friday, 23 May 2014

Budgets are like plumbing. If everything works as it should, then no-one takes much notice. But get it wrong, and things start to smell bad fast.

Today, it isn’t just Labor supporters who are noticing the whiff. Since the budget was handed down, everyone from pensioners to conservative premiers, students to business leaders have criticised aspects of the 2014 budget.

It wasn’t supposed to be like this. Last year, Tony Abbott suggested that his government would cut the deficit, treat all Australians fairly, and keep his promises.


Yet on the current evidence, he’s failing on all three counts.

Let’s start with the deficit. The Coalition would like you to compare Joe Hockey’s 2014 budget with Joe Hockey’s 2013 budget update. But Joe versus Joe isn’t the right question. What voters want to know is whether the deficit is better or worse now than at the time of the election.

Alas, the answer is worse. Whether you look at the deficit this year, next year, or over the next four years, the state of the books is worse now than when the Coalition took office. By scrapping the carbon price and the mining tax, and going soft on multinational taxation, the Abbott Government added billions to the deficit. Like a plumber who punches a hole in the wall but fails to fix the pipes, the Abbott Government has made the deficit larger.

How about fairness? According to independent modelling, the richest fifth of families with children will be virtually unaffected, while the poorest fifth will lose nearly $5 for every $100 of disposable income. For example, a couple with a single income of $65,000 and two children in school will have over $1700 cut from their family budget. Seven dollars to see the GP may be only the price of a cigar to some, but for those living paycheck-to-paycheck, it’s real money.

And yet while the battlers bear the burden, some billionaires will reap the benefits, with increased tax concessions for anyone putting more than $150,000 per year into superannuation.

And then there’s that awkward promise thingummy. Asked by a reporter last year for an assurance that ‘The condition of the budget will not be an excuse for breaking promises’, Mr Abbott replied ‘Exactly right. We will keep the commitments that we make.’ Now, he’s ducking and weaving like a nervous boxer, desperately trying to shove down the memory hole his solemn pledges of no cuts to education, health, pensions and the ABC.


I have to confess, I’m flabbergasted that a Prime Minister who campaigned in ‘trust me’ has now shifted to telling voters that they didn’t hear him properly. Sure, it’s theoretically possible that all 23 million Australians had a simultaneous bout of temporary deafness in 2013. But I’m not sure it’s the most credible explanation. Mr Abbott should be honest with the Australian people, and admit that he broke his word.

Because the budget doesn’t cut the deficit, preserve the fair go, or keep promises - the government is having a tough time telling the story of budget 2014. Pushed into a political corner, the government is resorting to the time-honoured political strategy of blaming Labor. This is like smashing the fire alarm to get your work colleagues’ attention – it might work in the short-term, but it’s not much good for productivity.

Likewise, the effect of trash-talking the Australian economy is already showing up in the confidence numbers. Consumer confidence and business confidence are subdued, while only one in three company directors think that the federal government is having a positive impact on their business.

One reason for the hit on consumer sentiment is that the budget is redistributing income from spenders to savers. Low-income households tend to spend their entire income, while high income households save as much as one dollar in five. As a result, redistributing money from the bottom to the top isn’t just unfair, it’s also bad for growth.

Tony Abbott has kept one promise – he’s managed to bring Australians together. It’s just a pity that they’re united in opposition to a budget that raises the deficit, boosts inequality and breaks faith with the voters.

Something in the budget pipes isn’t right, Mr Abbott, and the pressure is starting to build.

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An edited version of this article was originally published in the Daily Telegraph.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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