‘Put it on credit’: Australians are unwilling to fix our broken budget

Before he torpedoed the government’s omnibus welfare bill, Nick Xenophon waited to see if public outrage over the reforms exceeded the PR benefit of supporting budget repair— good populists being followers not leaders.

As this was happening, the budget took another hit, with the government steeling itself to abandon the pretense that $13 billion in blocked savings measures will pass the Senate. Since the government — along with everyone else — long ago abandoned any realistic expectation these measures would pass, this change really just brings the budget one (small) step closer to reality.

And a tiny step it is, for both major parties continue to peddle myths about budget sustainability. In particular, both sides perpetuate the fiction that their spending promises are ‘fully funded’. The NDIS is not fully funded, and never has been. Commonwealth spending on education, health, or roads… none of it is fully funded.

The budget has been in structural deficit for many years. This means in any normal year the government cannot meet its spending commitments without borrowing money. The government has only one pot of money, and spending commitments new and old come from the same place. There is no separate fund to pay for projects people really like.

If I am putting $1000 each fortnight on my credit card, and I promise to pay you $100 a week, you’d be concerned about how I was going to afford it. You would hardly think all my problems were solved if I said I could earn an extra $100 if I took another shift at work. New spending may be offset with new revenue, but this won’t fix the issue with the credit card: government spending is not fully funded.

Yet a paradox remains: people seem willing to accept some sacrifices to fund new spending on things like the NDIS, but not to repair the budget — as if there is some difference between the two.

This is why Labor, the Greens and others reacted so negatively to Morrison’s suggestion that welfare savings would pay for the NDIS. They know this contradiction makes Treasurer Scott Morrison’s job all but impossible.

The government’s attempt to create winners as well as losers from welfare reform is a much better strategy than trying to spread the pain around evenly as it did in the 2014 budget. Instead of creating universal opposition, the government hopes to raise a constituency to defend and support the reforms against attack.

However it remains hostage to those who ignore the cost and claim the only fair policies are those with no losers, only winners. And as long as minor parties on the Senate cross-bench continue to harness popular opposition to veto any cuts to spending or services, little will be done to repair the budget.

After all the government has already raised income taxes and cut superannuation concessions (once the progressives’ silver bullet solution to our budget problems). 10 years of attempting to raise more revenue has been 10 years of budget deficit.

What strategies do Morrison and Turnbull have left? Threatening the Senate with tax rises won’t work: the public will sheet home any blame for tax increases to the government and taxes are already going up due to bracket creep. Not to mention that the Greens, Labor and others already think taxes should be higher, so they can spend even more.

If Australia was to lose its AAA credit rating, it may shock people into thinking that something needs to change — but this is just as likely to be used by the opposition as ‘evidence’ of the government’s supposed incompetence as economic managers as it is of serious problems within the political system.

There is no question that the Senate is a roadblock to fixing the budget, but it is not frustrating some desperate desire of the public to see the budget repaired. On the contrary, the public seem to have written off bringing the budget back to balance as impossible or unimportant (or both).

Such is the task facing the government as it prepares its next budget. Not only must they attempt to pass a reform agenda through a Senate filled with conflicting special interests but they face the far harder task of persuading the public that change is necessary in the first place. Or will another budget just put the costs onto the credit card?

Simon Cowan is Research Manager at the Centre for Independent Studies