26/03/2013 - 09:14

Analysis: the next act in the Canberra farce

26/03/2013 - 09:14

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Forget the politics. Focus on the money. That’s the best advice for business and investors after the Canberra bloodbath which confirmed Julia Gillard’s control of the Labor Party, but not her control of the Australian Government’s budget.

Unbalanced is one way of describing the financial affairs of the government. Chaotic is another thanks to a combination of rash promises made in the heat of political struggle, and dwindling resources.

Truth, so often a victim of war, has flown out the window in the Labor Party’s civil war, and the government’s wider class war.

But, on May 14 the truth will come out when the Treasurer, Wayne Swan, is forced to explain in his budget speech what happened to the promised surplus, and why the government is looking down the barrel of a $16 billion deficit this year, and the same again next year.

That dollar figure has not been plucked out of the air. It is what the international market is being told by investment banks about Australia’s worsening financial position with the widely-respected RBC Capital Markets telling clients that Australia will be forced to raise an extra $32 billion over the next two years because it has spent far more than it raises in tax.

How the government got itself into such a mess will be the next act in the political farce that reached a low point last week with the sacking of multiple ministers and anyone else loyal to the former Prime Minister, Kevin Rudd.

It is possible that the horror budget brewing in Canberra today will be the final act of the Gillard Government with even its most loyal supporters wavering at the thought of introducing new tax measures just four months out from the September 14 election.

And if the most loyal are not questioning whatever happened to the promised surplus the independent members of the Parliament will be appalled at the mess created by a government which has been totally focussed on the survival of its leader at the expense of the country.

Public opinion polls, such as today’s Newspoll which points to a landslide swing to the conservative parties in September are not needed to feel the mood of Australian voters who have had enough of a hung Parliament and ineffective government.

The problem, even when the change comes, is that so much damage will have been done that it could take two, or more, electoral cycles to restore the financial status of the country.

Finding a spare $32 billion over the next two years will require a combination of higher taxes and sharply reduced spending, with the tax whack aimed at easy targets and not theoretical targets such as those proposed by Canberra boffins on the profits of the mining industry.

The failure of the mining tax to raise anywhere near the forecasts made by government and its advisers will be blamed for the current budget crisis, even though it was so horribly predictable three years ago when first proposed because commodity prices are always cyclical; up today, down tomorrow.

Perhaps you need to live in a state with a deep mining industry to understand that all booms end in busts and then the cycle starts again.

It was the Australian Government’s lack of understanding of the country’s most important export industry which caused it to believe that its budget could be partly framed around a tax on the unpredictable profits of mining.

Now the question becomes who gets hit by a new tax and the favourite, according to a man who was inside the Gillard government’s tent until late last week, is superannuation.

Simon Crean, once regarded as a father figure in the Labor Party but now a pariah in the Gillard branch of the party, let the superannuation cat out of the bag yesterday when he warned that the savings of millions of Australians are a prime target to help patch the government’s ever-widening budget deficit.

But, at the same time he gave his warning, Crean also wrote a nifty election campaign slogan for the conservative parties: “You can’t be taxing people’s surpluses built up in a super fund to pay for our surplus”.

There are too many words for that comment to be used in a television jingle, but there’s a powerful message that will not be missed by voters come September 14.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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