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Labor wins friends with cost-free policies. It can't last.

 

Here’s a list. The Uluru statement. The Biloela family. Corruption commission. Wages. Republic. Arts. Robodebt royal commission. Climate. Support for the ABC.

Here’s another list. Tampa. Dole bludgers. Stop the boats. Axe the tax. African gangs. The China threat. Work for the dole. Mutual obligation. Coal. Attacks on the ABC.

These two lists have two things in common. Though they cost the budget almost nothing, these symbolic policies are potent signals of how a government wants to be seen.

Progressives sell hope. Conservatives sell fear.

PROBLEMS AHEAD

The new Labor leadership faces many problems, some of them self-inflicted, which rule out the sweeping but expensive reform which its supporters demand. The government now has to deal with the results of its policy, in opposition, of waving through unpalatable Coalition legislation to avoid being wedged. Chief among these is the stage 3 tax cuts, which will remove $76 billion from revenue in its first four years and give most of it to those who need it least.

The Treasurer, Jim Chalmers, has promised a cost-of-living relief package in the October budget but fiscal reality will inevitably constrict its size, scope and effectiveness.

And there are unlikely to be any meaningful measures to address the nation’s most critical and socially damaging areas of failure – health and welfare. Together, those two areas account for over half of budget outlays.

Despite the nods towards social progressiveness, we can expect a horror budget in October. Like every incoming federal Labor government in Australia’s history, this one has to deal with a financial crisis. This time, soaring inflation prevents the government shovelling much more money into an economy in which supply shortages, record-high commodity prices, resurgent Covid and a lack of skilled staff conspire to jack up the price of almost everything. And the structural deficits, created when Howard and Costello gave away the temporary windfalls of a mining boom as permanent tax cuts, persist.

IT'S NOT AS BAD AS WE’RE BEING TOLD

On the other hand, inflationary pressures – the war in Ukraine, Covid-driven staff shortages, floods – are largely temporary. The stage 3 tax cuts don’t kick in until 2024-25 and the government would have a very good excuse to delay or restructure them.

And the debt-and-deficit scare, now taken up by Labor during the campaign, is a furphy.

“The budget is heaving with a trillion dollars in debt,” Jim Chalmers said. “You can’t just flick a switch and make a trillion dollars of debt disappear.”

You can, actually. He could, and probably should.

According to the budget papers, the federal government’s gross debt stands at $906 billion. But what actually matters is net debt – what we owe minus what other people owe us. Net debt is $632 billion.

And $356 billion of that is owed by one arm of government – the Treasury – to another arm of government – the Reserve Bank. The government could cancel that debt at any time, with no effect on the broader economy – but it would remove a convenient excuse for some unpopular budgetary tightening.

IT’S TIME

Before long, though, the honeymoon will be over and symbolism will no longer be enough. Voters expect a Labor government to prioritise the areas of public policy that improve the lives and survival of all people, but particularly those who are most vulnerable. That can’t happen without substantial and long-overdue Commonwealth spending on health, welfare and education.

The new government has some time, but not much. The national health funding agreement with the states comes up for renewal in three years, but action is imperative right now.

The Coalition pumped almost five times as much per student into private schools as they gave to government schools, so that needs to be reversed.

Universities were punished by the former government, not getting Jobkeeper support during the pandemic and enduring changes to student funding that turned out not only to be ineffective but also to contribute to inflation.

Debt-and-deficit scares are low politics, no matter which side they come from. Albanese and Chalmers will not deliver a budget like Abbott and Hockey’s effort in 2014 –  But they must surely remember how long-term perceptions can be set by a government’s first budget.

 

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