Tony Abbott is confronting the reality that he'll probably never deliver a surplus

Taking a leap of faith. (Photo: Getty Images / File)

This is proving another rough parliamentary sitting for Tony Abbott, and there’s still a week to go. It started with another disaster in the Senate with the defeat of university fee deregulation, and leaks that a double dissolution was canvassed (but dismissed) between Abbott and senior ministers on Monday night. Yesterday the prime minister blunted his own attack on the opposition by calling Labor leader Bill Shorten “the Dr Goebbels of economic policy”.

Godwin’s Law. You lose the day.

Parliament rises at the end of next week for the last time until the budget on May 12. Throughout April we can expect the customary leaks around what’s likely to be in the budget, and the high-level expectation management is underway. It will be, Abbott says, “dull and routine”. Asked about it this week he said:

…this Budget certainly will be much less exciting than last year’s Budget because the task this year is at least 50 per cent reduced from the task last year. So, inevitably, it will be a much less exhilarating budget for those who are budget devotees and structural reform enthusiasts. But nevertheless this will be a Budget that is prudent, frugal, responsible, there’ll be something in it for families, a better childcare deal in particular, and there’ll be much in it for small business, particularly the tax cut that small business is yearning for because we want to unleash the creativity of our small business people and the best way to do that is for the dead hand of Government to rest less heavily upon them.

Abbott is laying the groundwork for a budget that will be about continuing deficit reduction rather than a path back to a surplus. Asked in that same press conference whether his own projections showed that the budget would not reach surplus in 40 years, Abbott said: “We get very close to balance, well within one per cent of GDP, we get very close to balance in 2020.”

It’s as close to a yes as you’ll get. Barring some kind of external positive shock to the economy, there will be no surplus under a government Tony Abbott leads.

This annoys some of Abbott’s twitchy backbenchers. The Australian reports this morning that one MP “questioned whether the government was walking away from its fundamental promise to produce a surplus over time”, saying the party was “trying to figure out what our economic narrative is”.

Gerard Minack’s chart showing the effect of government decisions versus the economic cycle.

I’ve written before about the damaging obsession in Australian political circles with surpluses at the cost of rigorous design in economic policy. The mining investment boom and Peter Costello’s string of huge surpluses induced a delusion that surpluses and a strong economy are the same thing. They are not.

Deficits in certain periods can contribute to economic growth as the government puts money into the economy (by spending) rather than taking it out and banking it. RBA board member John Edwards recently pointed out the economy needs to be growing at around 3% to stop the unemployment rate ticking up. The continuing prosecution of savage spending cuts and public sector layoffs are not sensible in this environment.

The abandonment of surplus puritanism has now become evident in the Abbott government. It gives at least the appearance that some economic pragmatism is replacing the previous default setting of zealotry that underpinned the last budget, inspiring the doomed policies of GP payments and university fee deregulation, and leading to the cuts to government services reaching across the CSIRO and the ABS.

The problem that remains, however, is there is still no sign the government really grasps its political reality. The crossbench Senators have been pointing out this week that Abbott and his ministers appear disinterested in negotiating with them, despite them being the key to actually getting anything done.

Abbott may be refining his economic strategy, but without a political strategy it is moot. The front bench remains pugilistic and apparently unaware of the public’s dim view of its performance. Without a way of convincing voters that the Coalition is on the right path, and putting in some time to ensure the government can enact its decisions through the parliament, this will continue to a government that can neither build a case for change nor bring it about.

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