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Grattan: Brace for painful cuts


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The big message out of the updated, gloomy budget figures released yesterday is: prepare for some shocker spending cuts to come.

The strategy is obvious, learned from forebears. Present a black picture. Heap blame on your predecessor. Have the answers. But make it clear these will involve bitter medicine.

“Living within our means requires the elimination of waste, but it will also require people to adjust to reductions in some spending to which they have become accustomed,” the Mid-Year Economic and Fiscal Outlook document says.

Treasurer Joe Hockey was blunt: “Over the next few months Australians will be asked to accept the decisions that help to make our quality of life sustainable.” Shades here of Hockey’s speech last year about the end of the age of entitlement, though he’s more careful with his language.

The government is trying to wipe the slate as clean as possible for its coming changes, that will follow the Commission of Audit findings and be in the first Hockey budget in May.

This year’s budgets revenue estimates have deteriorated significantly since the election but the Coalition is also punching home the dire message by adding to the bad numbers itself.

What Labor left, what has changed in the underlying situation and what the Abbott government has done all blur into the new bottom line. The result provides a rationale for doing things that might otherwise be harder to justify.

It’s notable that the government has been able to come up with a massive black hole since the pre-election update (nearly $17 billion this financial year and more than $68 billion over the forward estimates) even when we have the Charter of Budget Honesty.

That charter, put in place by former Liberal treasurer Peter Costello, has Treasury and the Finance Department issue an update early in an election campaign. PEFO, as it’s known, is designed to prevent nasty post-election surprises.

The current black hole is a combination of worsening circumstances since PEFO, decisions and revisions by the new government (including an $8.8 billion injection for the Reserve Bank) and methodological changes in projecting unemployment and the terms of trade in the out years.

The Coalition used to accuse the Labor of over-optimistic budget figures. Now in power, it is producing what may be pessimistic numbers. That improves the chances of the results later looking positive, at least compared with this benchmark.

Assistant Treasurer Arthur Sinodinos said the projections should now be more realistic and believable. If the reality turned out better, that would be a pleasant upside surprise, he said. Precisely.

Shadow treasurer Chris Bowen pointed out that the old methodology, which had unemployment in the out years based on “trend”, was used by the Howard-Costello government as well as Labor. Using the PEFO methodology would have meant the unemployment projections in today’s MYEFO would have been lower.

Either way can be justified but the method does affect the numbers. Just as statistics can often be cast in different ways, so the assumptions on which projections are based will feed through into the figures. It’s a reminder that budget numbers always contain “rubber” of one kind or another.

In making its savings for the May budget the government will be hemmed in by election promises. For example Tony Abbott said before the election there would be no net cuts to health and education. But there will be “efficiencies” within these broad areas – almost certain to mean sweeping changes.

While Abbott stresses promises matter and has relearned that lesson from the character-forming experience over the Gonski school funding, it’s clear the government is willing to stretch promises when it thinks it can get away with it.

Apart from the pre-election pledges, it is saying that everything is on the table for review.

In 2014, the Coalition will need to alter its messaging. As the election recedes it can’t play the blame game endlessly. The relentless negativity of opposition has turned into the relentless negativity of government but that will alienate people if it goes on too long.

The electorate is impatient and fickle. If the government is successfully to sell a difficult and likely unpopular package, it will need a narrative that better sketches a picture of the Australia to be created. Just as it has updated the budget numbers, it will have to revise its rhetoric, in order to take the voters along with it.

Michelle Grattan is Professorial Fellow at the University of Canberra.

This article was first published at The Conversation.

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