SAUL ESLAKE: The Government's Broken Promises Will Probably Hurt Swing Voters The Most

Picture: ODE Management

In his weekly note, Bank of America Merrill Lynch Australia’s Chief Economist Saul Eslake tried to get into the mind of Joe Hockey and the politics of this week’s budget.

Eslake hypothesised the Government is going to hit those who will either always vote for it, or never vote for it, saying:

The political calculus implies that, if the Government believes it has to break some promises in order to deliver a Budget that it meets its most important political and economic objectives, it is much more likely to risk annoying those voters who, for the most part, live either in constituencies which it is never likely to win, or in constituencies which it can be reasonably confident it will always win – rather than risk irking voters who live in constituencies which regularly change hands at elections.

Now of course, this argues for the debt levy, but against the change to the petrol excise.

However Eslake makes the point that the narrative the Government is running that harsh changes are in the long-term interests of the country, and are necessary in circumstances where “the Government does perceive an over-riding need to make decisions which will adversely affect voters in marginal constituencies.”

On that basis it seems the debt levy is a shoo-in.

But equally, the mooted petrol excise may not be a total re-indexation, but rather a one off change to the excise from the current 38.5 cents per litre.

Here is Eslake’s summary of the key measures likely to be included:

  • an increase in the pension age to 70 by 2035, and (possibly) a tightening of the income test for access either to the age pension or the Seniors Health Care Card;
  • tighter income testing of Family Tax Benefits, including possibly the abolition of ‘Family Tax Benefit Part B’ paid (without any income test) to families where one parent isn’t in paid employment;
  • tighter eligibility rules for unemployment benefits (‘Newstart Allowances’ and ‘Youth Allowances’), stricter ‘work-for-the-dole’ requirements, and more frequent reviews of eligibility for disability support pensions;
  • deregulation of university tuition fees (meaning that they rise), possibly combined with less generous provisions governing the repayment of student loans under the Higher Education Loans Program (HELP);
  • a ‘co-payment’ for visits to general practitioners – though this is likely to be much less than the $15 recommended by the Audit Commission;
  • further cuts in Public Service employment, in particular civilian positions in the Defence Department, and closure of the Military Superannuation and Benefits Scheme (one of the few remaining defined benefits schemes still open to new members);
  • either a one-off increase in petroleum products excise, or the reintroduction of annual indexation of petrol excise – reversing one of the sillier tax decisions of the Howard Government to abolish indexation of this excise in 2001;
  • an efficiency dividend to be obtained from the Australian Broadcasting Commission and the Special Broadcasting Service;
  • reductions in industry assistance programs (although we expect that the diesel fuel rebate, of which the mining and farming sectors are the largest beneficiaries, will remain unscathed); and
  • Curtailment of the ‘life gold pass’ for former MPs (which allows them to take air travel at taxpayers’ expense, among other benefits) – a decision which won’t save much money but is part of the presentational strategy of ensuring that the ‘pain’ of ‘fixing the budget’ is widely shared.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.