The PM promised pre-election that education, health, pensions would not be touched. Now, a budget surplus and getting rid of the carbon tax are the core promises that trump all others.

The question of the May budget isn’t really about deficit and surplus; it’s about what kind of country do Tony Abbott and Joe Hockey believe Australia should be. Thus far the noises from the government suggest that their vision is rather different from the one they promised during the election campaign.



Treating a budget surplus as the aim of economic policy is always a case of treating means as ends. It also ignores that the big final budget number has very little impact on people’s lives; whereas the numbers that makes up the budget – on education, on health, on pensions, on child care – are the ones that really matter.



Before the election about the only legitimate attack the ALP had on Abbott was that were he to win the election he would cut services and programs in much the same way John Howard did in 1996 and how Campbell Newman has done in Queensland.



This was the only reason why, on the night before the election, Abbott told SBS news that under his government there would be “No cuts to education, no cuts to health, no change to pensions, no change to the GST and no cuts to the ABC or SBS”.



In the run-up to the budget, however, the talk has come pretty thick and fast regarding cuts to these very things. Abbott on Tuesday gave himself a canyon of wriggle room to dump his pre-election promises. He told journalists:



“I really mean we will keep our commitments ... but one of the most fundamental commitments of all was to get the budget back under control, to put the budget back on to a path to a sustainable surplus. So we’ll be doing that, but as for pensions and pensioners, I am confident that pensioners will be better off, because under this government they will lose the carbon tax, but keep the compensation.”



In effect, getting rid of the carbon tax and a budget surplus are the core promises that trump all others.



In 1996 when the Howard government broke its election promise by cutting the public service, the health and education sectors, welfare and the ABC, Howard justified it by saying:



“We worked hard. We tried to get the balance right, we tried to get the economics right, we obviously tried to get the politics right, we tried to spread the burdens around, we certainly were determined to keep the core commitments we made. And we have, in full.

Come May, Abbott could probably read that statement verbatim.

The belief that the budget is all about cutting services and programs was put to lie this week by the Parliamentary Budget Office releasing a review of government revenue over the past 30 years. It noted that average revenue since 1982-83 has been 24.1% of GDP, but that since 2007-08 it has been significantly below that level, and is only expected to return to average levels in 2017-18:



In the past few weeks I’ve been making the case that the budget isn’t just about cutting expenditure, it’s also about raising revenue. So it was pleasing to see Laura Tingle reporting that the government is investigating raising taxes.



It appears the Medicare levy will be the most likely one – it’s always politically better to raise a levy than a tax.



But changes to the pension remain on the table. Of late I have become a bit of a patriot regarding Australia’s welfare system. I am very much in favour of targeted means-tested welfare rather than a more society-wide model observed in some European countries. It was thus interesting to see ANU economist Peter Whiteford note that the OECD’s recent society at a glance report showed Australia had the most targeted welfare system in the world.



This doesn’t necessarily mean all is perfect. Targeted only means that fewer people who don’t need welfare are getting it; it doesn’t automatically mean the needy are getting enough. Indeed, the OECD also found the number of people in Australia who could not afford to buy food rose to 10% in 2011-12, up from 8.8% in 2006-07.



However, while there appears little relationship between targeted welfare and poverty, when a targeted welfare system is cut it invariably hits the poorest hardest as they are the ones getting the maximum benefit.



For now the government appears to be aiming to cut the Family Tax Benefit B, which households are eligible for if the main earner earns less than $150,000, and cuts out when the second earner earns more than $26,390.



But because our system is so tightly targeted, reducing the threshold to $100,000 per household is estimated to save only $500m a year. To get more savings (about $1.5bn) they would also need to change the eligibility rules, such as cutting off the payments in line with the cutoffs for parenting allowances.



Such a move would be completely hypocritical. In 2011, when the Gillard government merely froze the maximum threshold at $150,000 (rather than increase with inflation), Abbott suggested the ALP was treating “a policeman married to a nurse [as] part of a super rich family”, and Joe Hockey said it was “the politics of envy”. It also unleashed some of the most abysmal media reportage ever seen as those on $150,000 were suddenly transformed into battlers.



The budget will announce to Australia the Abbott government’s vision for Australia. Before the election, Abbott was scared enough to commit himself to a vision where education, health, pensions and the ABC and SBS were not touched. He now seems set to outline a vision where a budget surplus is more important than what is cut in order to achieve it.

