The Budget - summed up

One of the reasons why the previous government felt obliged to “hand over” the revenue windfalls generated by the commodities boom in the form of tax cuts and increased spending may have been because, once they had “paid off” the Commonwealth’s net debt, they couldn’t think of any alternative use for those surpluses than defraying the hitherto unfunded liability for retiring public servants’ pensions.

Although that was an appropriate thing to do, it was unlikely ever to win widespread public support for the notion of paying more in tax was spent on public services. In its final six months in office, the Coalition Government did finally start to designate part of its surplus for longer-term expenditure priorities in higher education and medical technology.

This Budget takes that approach a quantum leap further, by allocating $20 billion to a new “Building Australia Fund” to finance longer-term spending on infrastructure, $10 billion into a “Health and Hospitals Fund” and $5 billion into a new “Education Investment Fund” (to which the $6 billion previously allocated by the Coalition Government to its Higher Education Endowment Fund will be added). These are exactly the sort of purposes for which government should be (and should have been) seeking to “save” some of the windfall revenues associated with the current commodity boom.

Finally, this Budget includes some noteworthy initiatives to improve the transparency of financial reporting. At long last, the GST has been recognised as a Commonwealth tax, consistent with the advice of the Auditor-General and the Statistics Bureau. The sometimes confusing presentation of the Budget using three different sets of accounting frameworks has been simplified. And there is a more helpful discussion of the sensitivity of the Budget aggregates to alternative economic scenarios, including a fall in the terms of trade.

In sum, this is an appropriate Budget for challenging economic circumstances. It doesn’t add to upward pressure on inflation and interest rates, as recent Budgets have done; nor does it take undue risks with a more uncertain outlook for economic growth than at any time in the past five years. It acknowledges that bringing inflation down will entail some sacrifices (including a rise in the unemployment rate), but attempts to spread those sacrifices more fairly than would have been the case if the task of slowing domestic demand had been left to monetary policy alone (as it has been up until now).

Having brought down an “appropriate” Budget for current circumstances, and having kept faith with the voters who installed it at the last election, it is very much to be hoped that the Rudd Government will be willing to spend political capital more adventurously in the two Budgets before the next election.