Budget preview with Laura Tingle

TONY ABBOTT: There are no cuts to health.

TONY ABBOTT: No cuts to education. No cuts to the ABC.

JOE HOCKEY: The days of borrow and spend must come to an end.

TONY ABBOTT: The debt and deficit disaster.

REPORTER: Time out for the treasurer and his right-hand man.

REPORTER: This budget was always going to be a hard sell.

JOE HOCKEY: The age of entitlement is over.

TONY ABBOTT: We had a fire and the budget is the fire brigade.

JOE HOCKEY: We were trying to do too much in one budget.

JOE HOCKEY: We are still on a clear and credible path back to surplus

SCOTT MORRISON: Continuing to ensure that the Government lives within its means.

JOSH FRYDENBERG (2019): Tonight, I announce that the budget is back in the black and Australia is back on track!

LAURA TINGLE, REPORTER: There have been three prime ministers and three treasurers in the eight years the Coalition has been in power, but until very recently there has just been one overwhelming idea driving its management of the federal budget – debt and deficits.

The relentless quest for a budget surplus was tied up in politics, as much as it was in economic management – a constant reminder that Labor had presided over the budget going into deficit during the global financial crisis.

The road back to surplus from 2014 was slow and in the early days full of political disasters, but by 2019, the Government was so certain of a surplus in the next financial year, it was already banking the political win.

SCOTT MORRISON (Coalition election ad): Well, gidday, I’m here with the Treasurer and he is delivering his first budget and it is going to be a cracker. We are back in the black.

LAURA TINGLE: The budget forecasts right before the pandemic hit showed modest but sustainable surpluses over the coming years but then in the last budget came a spectacular write-down and the realisation we were back in the red for the long term and in magnitudes previously unimaginable.

A global pandemic had smashed the whole debt and deficits argument to pieces, and it was only a question of time until the Government had to change its message, too.

JOSH FRYDENBERG, TREASURER (April 19): We need to continue to work hard to drive the unemployment rate lower.

LAURA TINGLE: The shift has implications for the economy and the budget.

JEFF BORLAND, LABOUR MARKET ECONOMIST: In the decade following the GFC, we tracked along with a rate of unemployment between about 5.5 and 6.5 per cent.

By doing that, compared to going for a lower rate of unemployment, it meant that we were accepting a less even distribution of work and less even distribution of income than we could have had.

So the decision to now move to an unemployment target of below 5 per cent, I think it’s a highly significant change and I think it’s to be applauded.

LAURA TINGLE: What does that mean in practical terms for budget strategy?

CHRIS RICHARDSON, DELOITTE ACCESS ECONOMICS: It means the Government will keep going, aiming to drive unemployment lower than governments in Australia have done for a long time now.

Other things equal that spending money now to create money later.

LAURA TINGLE: But the shift to a low unemployment target doesn’t just affect the economy and the budget, it also transforms politics.

It takes the constraints off spending. It takes the pressure off getting back into surplus. It means starting to eat Labor’s political lunch on issues like underemployment and low wages growth, and just now it means playing to a Coalition strength – the extraordinary bounce back in the jobs market since last year.

JEFF BORLAND: The fact that we’ve had 940,000 extra persons employed, we’ve never had the rate of employment growth, rate of employment growth before like we’ve had in the last 10 months.

LAURA TINGLE: That extraordinary strength in the labour market in turn comes from the unexpected growth in the economy.

CHRIS RICHARDSON: We basically have a V-shaped recovery that seemed spectacularly unlikely even just a handful of months ago.

We kept COVID numbers really low. That means people are out and about and they are spending. That has given us jobs.

The world has given us money. Things like the iron ore price at a record high – that combination, good for the economy, good for the budget.

LAURA TINGLE: In other words, the Government is in a particularly unlikely sweet spot as Josh Frydenberg prepares to deliver his third budget.

The economy is roaring, household and business confidence are at all-time highs, unemployment is falling, and the previous rhetorical constraints on spending are off.

It gives the Government a platform to renew its message on what it stands for post-COVID, so it is no wonder that people are speculating about an election later in the year.

JEFF BORLAND: The stimulus that has already been provided, the job growth that we’ve already seen, and what we’ve been told about the budget have really put us on a path that does look like it is going to get us below 5 per cent, and that’s why I think we really need to be pushing to the low, low-4s for the rate of unemployment.

LAURA TINGLE: The budget announcements already made suggest the Government is trying to clear up all its trouble spots, from women to rural medicine, from aged care to childcare – the sort of political spakfilla you splash around before you go to the polls, and government ministers know better than anyone else that things cannot be guaranteed to stay as good as they are next year.

That’s partly because the impact of the stimulus already in the economy will start to wear off and the impact of closed borders is likely to be much more negative than positive as we start to feel the withdrawal effects of no growth in migration.

GABRIELA D’SOUZA, COMMITTEE FOR ECONOMIC DEVELOPMENT: Immigration is crucial to the Australian economy. It has been for a long time.

We wouldn’t have the kind of international education market that we have now, or we have had without access to migrants.

LAURA TINGLE: Closed borders come with a cost but they are also having a profound effect on how Australians feel.

CHRIS RICHARDSON: In the near term, those closed borders are helping confidence, and it is a genuine trade-off there.

It is a very direct way to keep COVID out, you know, and it comes with pretty high cost, but it’s working. Watch COVID numbers and watch confidence. Those two things will tell you what happens in the coming year.

LAURA TINGLE: Would you be expecting to see a big impact on economic growth because we don’t get that population growth?

GABRIELA D’SOUZA: It will come. We’ve seen that we have been able to hobble along on our current levels of economic growth, but that won’t last forever.

We have seen also the Government pump a lot of money into the economy last year as part of its stimulus efforts, so we know that that will have some effects.

LAURA TINGLE: The question becomes whether the Government can find a way to get migration flowing, at least for the skilled workers we need, any time soon and whether those workers will want to come.

GABRIELA D’SOUZA: Australia is a very desirable place for people to live, so a lot of these effects could be short term, but I know already that a lot of migrants and international students are already looking to other countries.