#declangleeson

DECLAN GLEESON

Constrained by a dire political situation of their own making the Prime Minister and Treasurer have handed down the only type of budget that they could; one which tries to offend no one, appeases the electorate and attempts to resuscitate business confidence. Labor's chance to seize the initiative with a more responsible alternative was passed up.

The Government has retreated to a position where it now resembles the 'no surprises', diligent Government that Abbott promised it would be. The 2015 budget is the antithesis of its predecessor in its rationale and aims. It seeks to undo the damage from the disastrous 2014 budget and restore business confidence with a range of spending initiatives.

Central to the thinking behind this budget were immediate political and economic considerations. And nowhere is this more evident than in its small business package, one of the budgets signature features.

Small business is given a 1.5% tax cut and urged by the Government to "have a go". With business confidence in a protracted slump, no thanks to the Governments largely erratic and disappointing performance to date, the economic rationale behind this measure is obvious.

The second main aspect of this package is a superfluous $20,000 instant asset write off, effective immediately. This measure in particular is one that wouldn't be out of place in the Howard Governments handout and tax cut rituals; acts of electoral appeasement to its core constituency of lower and middle income families dubbed the 'Howard battlers'.

It is no surprise then that Abbott was quick to label the big winners from this measure as 'Abbotts Tradies' as the Government seeks to sure up the support of core Liberal constituencies.

Whilst clearly being an exercise in electoral appeasement, Abbott continues to argue that his Governments two budgets are consistent in their pursuit of deficit reduction. Indeed, the budgetary projections show a return to surplus in 2019-2020. Yet this is not due to any measures included in this budget. Most of this is driven by huge projected increases in income tax revenue through bracket creep (when inflation pushes incomes into higher tax brackets).

To believe that these projections will eventuate would be too trust obscenely optimistic growth forecasts and the electorates tolerance for permanently increasing taxation - as an ever greater proportion of middle income earners are pushed into the second highest tax bracket. This is unlikely, and the salience of the bracket creep issue will grow with each passing year.

This ticking political time bomb has been kicked down the road, to be defused by a Government not concerned primarily with political survival.

Framed by the Government as 'fair' and as an affront to no one, this budget is definitive evidence that Labor was triumphant in its values-driven assault on the Government and that the body politic remains centre-left in its economic outlook.

Unburdened by the dire perceptions which has forced the Government to unveil such a reform-lite budget, there was enormous opportunity for the Labor opposition to build upon its recently released superannuation policy, reject the Governments conspicuous efforts at vote buying, and chart a more credible path back to surplus.  

Yet Bill Shortens budget reply was a disappointing and feckless display of one upmanship, and an appeal to the Labor heartland on issues such as education. He was left looking ridiculous when proposing a 5% small business tax cut with no explanation of how such a substantial reduction in revenue would be covered, and why exacerbating the inefficiencies of a two-tier company tax regime would be a responsible idea.

With the budget well received by the public, and with no substantial and credible criticism from the opposition, Abbott has been injected with a renewed sense of confidence. Having been under fire incessantly for the best part of a year the Prime Minister relished the opportunity to go on the attack against Labor's modest superannuation policy, claiming that the Government will never reform superannuation.

It's a depressing choice of tactic and an ultimately unsustainable position as superannuation tax concessions look set to overtake the pension as a percentage of Government expenditure in the coming years.

Thus the prevailing political dynamic appears to be one in which neither party believes that it can gain politically by making substantial inroads into fixing the nations worsening structural budget deficit. Yet a report commissioned by the Business Council of Australia released last month revealed a public who are aware that the nation is headed in the wrong direction and receptive to the idea of reform to the tax system. Both the Government and opposition would be wise to heed such a report.

The Shorten Opposition, ascendant in the polls and facing a pugilist Prime Minister who is well versed in the art of scare tactics and negative campaigns, must be tempted to largely persist with a small-target strategy until the next election.

Yet Shorten would be wise to remember that Kim Beazley's persistence with a small target strategy against an unpopular first term Howard Government only culminated in defeat and perceptions of Beazley as a man who didn't carry any convictions or beliefs.