MYEFO: Unsealed Road To Surplus, Expressway To Election
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MYEFO: Unsealed Road To Surplus, Expressway To Election

MYEFO: Unsealed Road To Surplus, Expressway To Election

The ‘measured and gentle’ approach of the federal government’s mid-year economic and fiscal outlook (MYEFO) proves that the Prime Minister, Malcolm Turnbull has little option but to prepare for an early election before handing down the 2016/17 federal budget in May next year.

Treasurer Scott Morrison and the Finance Minister Mathias Cormann delivered the MYEFO in Perth on Tuesday to unveil an increase in the size of the budget deficit from the forecasts made in the May budget.

A number of the savings made in welfare compliance, reducing bulk billing incentives, and cutting workplace health programs, aged care and child care were offset by further revenue falls, a notable $2.7 billion increase in the interest repayments on government debt, additional expenditure from the intake of Syrian refugees and the financing of the government’s Innovation Statement.

The federal government’s deficit now sits at $37.4 billion and a tiny surplus is now forecasted for 2020/21, and yes that would be eight whole years after fiscal messiah himself – Wayne Swann, trumpeted “four years of surpluses” on budget night 2012/13.

In his first major economic statement since being sworn-in as Treasurer in September, Scott Morrison looked uncomfortable and stiff as he provided the update to the room of very few journalists in Perth. Aside from being the home state of Cormann, Western Australia seemed to be an odd choice for a Turnbull government borderline obsessed with the services sector and non-traditional industries. All that this location did was bring the nose closer to the stench of massive revenue write-downs from a falling iron ore price.

Both the Treasurer and Finance Minister seemed hell bent on avoiding the slogans of previous economic outings by the former treasurer, Joe Hockey, but that did not stop Morrison from using the longer bow of the quintessential (and largely non-existent) Australian family road trip to describe the government’s efforts in returning to surplus without impacting jobs and economic growth.

The government has projected real GDP growth to jump from a forecasted 2.5 per cent in 2015/16 to 3 per cent in 2017/18. In addition to this, a fall in unemployment across the out-years is projected, where the figure is expected to rest at 5.5 per cent from 2018/19 onwards.

This unemployment figure is in-fact highly ambitious and would require the government to obtain a sizeable mandate on microeconomic reforms heading in to the 2016 election, which at this stage seems largely unlikely given the difficulties it will face in selling a taxation reform package to the electorate.

Learning from how poorly the 2014/15 budget was received amongst the media class, Morrison has tempered the language to the government’s “workman-like approach to… [fiscal] progress.”

This policy pivot which began with the moderate budget in May implies, now in the context of Malcolm Turnbull’s leadership, that the government has very little interest in addressing the nation’s crippling spending problem as a first order priority.

Budget repair finds itself on the back-burner once more as the Commonwealth’s bourgeoning level of debt closes in on that much-feared $667 billion number which the former Labor government’s policies were expected to accrue by 2022/23.

In a highly strategic move, the government will try its hand at making significant changes to revenues presumably before the next election. If they are to make any difference to the bottom line they must be willing to shift the economy to lower and flatter (or regressive) rates of taxation across the board.

The age of entitlement however, is still alive and well, proven time and time again by the incessant expectation of the press gallery that the government must be willing to redistribute income through increased welfare expenditure to those ‘adversely’ affected by any taxation change at near dollar-for-dollar level.

The only way the government can defy the gallery is by taking a comprehensive economic agenda and argument to the polls, and Tuesday’s MYEFO gives every indication that this is a government now treading water until they ready to do as such.

Further, the worsening budget bottom line means that the government would be fools to open themselves to further ridicule in the face of another May budget where there is only a poor economic narrative to spin. It would be another easy win for the intelligentsia and Opposition who do not know the first thing about fiscal responsibility.

Not only this, but the government would be also forced in to satisfying the electorate’s appetite for pre-election sweeteners which would only see a further worsening of the budget position.

The Turnbull government finds themselves standing, painted into a corner by a febrile media, poor previous economic leadership and increasingly strong global economic headwinds.

Malcolm Turnbull has no option but to call an election before the next budget and put an end to our nation’s appalling approach to the budget and forge his own legacy in making the reforms and the cuts we so desperately require.

This could all have been a part of Turnbull’s, “nimble” and “agile” and “dynamic” master plan anyway. And with the Australian dollar worth so little, who knows? Family road trips could be back in vogue without the knowing of us mere mortals.

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