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  • Written by Tony Walker, Adjunct Professor, School of Communications, La Trobe University
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Treasurer Scott Morrison has delivered a 2017-18 budget based on some heroic assumptions about a continued improvement in the international economy, and tethered firmly to concerns about the government’s own political vulnerability.

In the process, Morrison has leapfrogged normal practice in the first budget after an election – traditionally an opportunity to tighten purse strings – by outlining free-spending government programs in health, education, housing affordability, assistance to seniors and a big down-payment on an ambitious suite of infrastructure projects.

With its eyes firmly on a populist challenge from the right, the government has projected some tough measures to bring the larger banks to heel by instituting a series of reforms that will seek to answer those concerns.

Banks will not be happy, nor will investors in those institutions whose share prices are likely to retreat once the impact of the proposed levy on profits is factored into market calculations.

Beyond all that, Morrison’s budget speech could be read in part as an electioneering document, as if the next election was just around the corner instead of two years away.

Theoretically, we are two budgets shy of the next election. But clearly Morrison and Prime Minister Malcolm Turnbull have resolved to move onto the offensive politically by bringing down a budget that is both populist and expansionary.

This is a budget that could easily have been delivered by a Labor treasurer.

What should be kept in mind is that the Turnbull government is clinging to the slenderest of parliamentary majorities, and therefore vulnerable to unforeseen developments, including health issues that may deprive it of that majority.

While it is premature to make such a judgement, the 2017-18 budget may well come to be regarded as the moment when Turnbull resolved to put a stake in the ground on issues that will define his tenure.

Thus, his decision to resurrect the Gonski needs-based funding program for schools, and his undertaking to fully fund the National Disability Insurance Scheme via an increased Medicare levy, are significant initiatives in the life of his prime ministership.

He is already getting pushback on the Gonski proposals from Catholic schools over a projected slowing in the growth of allocations to that sector.

Increases in the Medicare levy - in other words, an increased tax - will dismay some of those on the right.

Perhaps most pointedly, this budget represents a riposte to the 2014-15 budget from Joe Hockey in the Tony Abbott government, when a number of government programs were curtailed, raising questions about fairness.

Morrison and Turnbull have thrown that strategy into reverse. In the process, they have sought to market the budget as an attempt to rebalance the government’s relationship with an electorate that believed it was no longer being heeded, and certainly not being treated fairly.

It remains to be seen whether this approach will work, or whether it is too late for a conservative government to regain lost ground.

At his budget eve press conference, Morrison made a telling observation that appeared to anticipate criticism from the right.

“This is not a budget for ideologues,” he said. “This is a budget for a government elected to do its job.”

Morrison returned several times to the issue of sluggish wages growth in his remarks to the media, an indication that the government understands it is vulnerable to widespread disaffection over a lack of material improvement in people’s lives.

Now to the glass half full assumptions on which the 2017-18 budget is based, and more to the point Morrison’s insistence he had charted a clear path to a return to surplus in 2020-21.

His prediction that a deficit of A$29.4 billion in 2017-18 will return to a projected surplus of A$7.4 billion in 2020-21 rests on a continued strengthening in the global economy, and ongoing improvement in Australia’s own economic performance.

“The signs of an improving global economy are there to see,” he said in his budget speech. “There is clearly potential for better days ahead.”

Well, maybe!

Morrison is predicting a rebound in Australia’s real GDP growth to 3% 2018-19 from 2.75% in 2017-18, reflecting an improvement in global economic conditions.

Growth in 2016-17 is forecast to be a limp 1.75%.

The point is that Morrison and his Treasury advisers are banking on a fairly robust pick-up in Australian rates of growth to underpin ambitious new expenditures, and an earlier-than-anticipated return to surplus.

However, much depends, as always, on China preserving growth at around 6.5% per annum. Perhaps more importantly, it will also need to maintain its appetite for Australian commodities.

The Budget papers acknowledge the difficulties facing China in its efforts to accommodate slowing growth “amid structural shifts in the economy, a declining working age population and high levels of debt”.

In other words, China providing a continued “Band-aid fix’’ to Australia’s precarious budgetary situation cannot be taken for granted.

That said, it is true that the global economic environment has improved somewhat in the past 12 months. This means that some of the financial pressures on the Turnbull government have eased since its mid-year economic forecast in December projected a less buoyant outlook.

Morrison is half-right when he says there is "potential for better days ahead”.

But there is also plenty of scope for disappointment if a fragile global recovery falters. Or geopolitical upheavals weigh on confidence. Or if landmines in the banking sector lead to another financial crisis. Or if the world finds itself beset by events that no-one could possibly predict, such as a terrorist episode on the scale of the World Trade Centre attacks in 2001.

Morrison and Turnbull cannot afford to dwell on the negatives in their efforts to get a listing conservative ship-of-state back on course. In that regard, this budget represents something of a gamble on continued global growth, and a willingness of an Australian public to accept a further tax increase (via the increased Medicare levy) and little prospect of tax reductions in the next two years.

To that extent, this is a budget that appeals to altruism over self-interest. This is not necessarily a winning formula politically, but Turnbull might be given credit for trying something different.

Authors: Tony Walker, Adjunct Professor, School of Communications, La Trobe University

Read more http://theconversation.com/budget-2017-morrison-heads-off-the-right-with-an-appeal-to-altruism-over-self-interest-77242

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