The Policy Cracks In Abbott’s Fiscal Narrative

Since coming to power the Abbott government has broken a slate of election commitments in the name of fiscal restraint and economic sustainability. Having made specific promises to keep the funding for nearly all of Labor’s major spending projects, while simultaneously promising to reduce total government expenditure, the newly elected government found itself confronted with a Sophie’s choice of core promises and chose to sacrifice the former.


Oppositions making and then governments breaking contradictory and unkeepable promises is a ritualistic fixture of the Australian electoral cycle.  Since the demise of the Whitlam government, dying government have pumped the electorate with fiscally unsustainable goodies in desperate, last ditch attempts to cling on for another three years. Opposition leaders equally desperate to preserve their tenuous lead in the polls engage in the politics of “me-too” and we reach a bipartisan consensus to tax nothing and fund everything.


Then the new government arrives with huge reserves of political capital, no election in site and a budget groaning under the weight of election sweeteners and they sensibly begin to trim back the fat. Sectional interest groups who had pinned enormous hopes on the anticipated cash splash howl with rage; but most voters soon acclimatize to the policy change, and in the long term the government receives plaudits for its so called fiscal restraint.


But the integrity of such an approach is predicated on the expectation that the least purposeful spending is the first to go, and that the government will apply the so called efficiency dividends with some semblance of consistency. Since its inception, the Abbott government has been guilty of two highly questionable cash splashes which have grossly undermined its cuts to health, education and welfare benefits.


The first was the 16 million dollar bailout of the Cadbury Factory in Tasmania. The new government boasted that businesses would have to stand on their own two feet and refused to bailout flagging companies SPC and Holden. For a right of centre government, refusing to subsidise private businesses incapable of turning a net profit would seem to be altogether consistent with their philosophical agenda. Alas then why did they bail out a flagging chocolate factory in Tasmania while offering little explanation other than “Tasmanians are special,”? Paradoxically Cadbury have since refused to meet the conditions of the government grant and the 16 million has returned to the Treasury. Sadly for the government this latest development was scantly reported while the initial announcement received saturation coverage.


Secondly If the Abbott government is to credibly claim that it is governing with fiscal restraint, it needs to rescind its carbon tax compensation measures. It was pragmatic of  Opposition Leader Tony Abbott to promise to retain the carbon tax compensation, such was the level of political debate in 2013 that a promise to wind back any social services payment would have been hysterically seized upon and distorted into evidence of an attempt to dismantle Medicare or some such.


Once the Liberal Party won government and set in train procedures to remove the carbon tax however, the newly elected government should have correctly identified the compensation scheme as an instance of wasteful government expenditure and removed it from their policy platform.


In the case of such pointless expenditure there could be no outcry. If it were removed in a swift surgical slash the electorate would quickly acclimatise to the change, and if the opposition attempted to block the cut they would expose themselves to levels of ridicule comparable to those surrounding the knighthood of Prince Phillip.


It would also have a devastating impact on Labor’s economic credentials. Shorten’s consistent opposition to Abbott government cuts is relatively effective in the context of trying to shield the less fortunate from social and economic devastation but this could not be said of 15 billion dollar compensation package for a tax that no longer existed. To make this claim would fit snugly into the conservative narrative of Labor as profligate spenders with no notions of thrift of frugality.


And yet the government squibbed this freest of free kicks and instead looked to such sacred cows as health, education and the old age pension to find budget savings. In doing this they are perceived as defunding essential government services all the while leaving an altogether pointless one untouched.


Perhaps current health, education and pension levels of funding aren’t sustainable in the long term and a path back to surplus necessarily involves cuts to these services. There is some scope to make this argument but only if it is clearly represented as a last resort. The electorate will only countenance the defunding of these services if it believes that every non-essential source of government expenditure has been dealt with first. And so long as these fiscal elephant remains in the room the government will continue to be selling a mixed and confused message which voters will understandably greet with a great deal of scepticism.


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