By Ian Verrender Tuesday 12 May 2015
Photo: Treasurer Joe Hockey delivers the 2015 Budget in the House of Representatives. (AAP: Lukas Coch)
Just a year ago, the Treasurer railed about the profligacy of his Labor predecessors and the desperate need to rein in spending. Now, his high-risk stimulus strategy looks like the one Wayne Swan used during the GFC, writes Ian Verrender.
The body language gave no hint of apprehension.
Joe Hockey tonight was all smiles, a man brimming with confidence as he toured the hallways of Parliament House, exchanging small talk and pleasantries with the media throng and the tribes of economists brought in to pass judgement on his Salvation Budget, after last year's disaster.
But confidence is a commodity that has been sorely lacking among consumers, business and the electorate generally almost from the moment the Abbott Government took office in late 2013. And it's a commodity Hockey desperately hopes will take root.
This was supposed to be a boring budget. It is anything but. It is a radical shift from Hockey's maiden effort; a sudden lurch from austerity to big spending stimulus that bears all the hallmarks of a government desperately hoping to resuscitate a flagging economy and its own credibility.
And even though that shift may be right for these straitened times, the muddled message - maintaining the Coalition's image as disciples of deficit reduction while providing fiscal stimulus, of advocating spending cuts as expenditure balloons - will continue to confuse and alienate its heartland.
In the Treasurer's words, the budget provides a credible path to surplus.
But it is a pathway paved with assumptions that border on the incredible.
If you believe the budget, deficits will shrink each and every year for the next four years until, bingo, we hit surplus at the end of the decade.
Exactly how is not mapped out.
The key, it seems, is a belief there will be a magical and rapid lift in economic growth.
After slowing dramatically in the past year to 2.5 per cent, the economy suddenly and inexplicably will expand by 2.75 per cent in the upcoming financial year, rising to 3.25 per cent the following year, before miraculously returning to its long-term growth trend of 3.5 per cent.
If true, we could be looking at 30 years of uninterrupted growth, thereby eclipsing Holland for the world record.
But what will drive this sudden growth? Therein lies a mystery.
There are brief mentions of an American recovery, of the rise of India. But vast swathes of the budget documents are devoted to the languishing price of commodities, our major exports. That it's occurring just as the flood of investment into resource development has vanished has only added to the sense of urgency.
There's also heavy emphasis on the slowdown in China, to its deliberate and painful transition away from investment spending - that has fed that nation's voracious appetite for raw materials - towards a consumption-oriented economy.
To counter this, the Treasurer wisely has opted to pull in unison with the Reserve Bank, to adopt a dollop of old-fashioned Keynesian stimulus.
A fortnight ago, the RBA slashed interest rates to historic lows and in recent months Glenn Stevens has made no secret that, not only was he running out of ammunition, but there were limitations to monetary policy. The central bank couldn't operate alone.
The question is: Will the small business cash splash be enough? It is designed to get small business to spend, but Australia no longer makes the kind of goods that small businesses buy which potentially could blow out our import bill.
In opposition, the Coalition heaped scorn upon its predecessors and Treasury officials for continually botching forecasts.
Wayne Swan got it wrong on a return to surplus. The mining tax failed to deliver the anticipated bonanza. Spending was out of control. Economic management was best left to the grown-ups.
It was a brutally effective message that resonated with the electorate. But it's a message that has come back to haunt Hockey.
Spending has not been curtailed. At 25.9 per cent of GDP, it is higher than any of Wayne Swan's budgets, bar one.
Just a year ago, the Treasurer railed against the waste and profligacy of his predecessors and the desperate need to rein in spending.
There was little of that tonight. He instead has opted for a high-risk stimulus strategy that looks more like the budget delivered by Swan when the world was gripped by the worst financial crisis in history.
Ian Verrender is the ABC's business editor.
