Labor was always the ‘mummy’ party. With this surplus, it’s ‘daddy’ as well

Since taking the Labor leadership, Anthony Albanese consistently has given his team a piece of advice on how to deal with the Coalition: “Turn their roads to victory into cul-de-sacs.”

His government this week made serious progress in closing lanes on the Liberal Party’s main motorway to electoral success. The budget challenged the Coalition’s long-standing brand advantage as the party that is better at managing the national finances.

Illustration: John Shakespeare.

By producing a budget surplus, the government will be equipped to rebut the inevitable criticism that it’s spending too much money. By Wednesday night, 24 hours after the budget was delivered, Labor had convened focus groups to test voter impressions. The participants in such groups are not chosen because they are special but because they are ordinary, not because they have studied the budget but because they have not.

The groups knew three things about the budget, according to people familiar with the research. One, they knew about the extra funding for Medicare, and that it’s supposed to make it easier to see a doctor. Two, they knew that there were some measures designed to help with the cost of living. Three, they knew about the surplus. Specifically asked whether it was a big-taxing, big-spending budget, the consensus of the voters was “no”.

This doesn’t imply that they were happy with it; there were plenty of grizzles along the lines of “What’s in it for me?” But the point is that the surplus is – or will be, when it’s officially tallied at the end of the financial year on June 30 – a road block against the standard Coalition line of attack.

This is necessary for Labor to protect itself against the Coalition’s time-honoured taunt. But not sufficient. It’s quite possible for a government to produce a surplus yet spend too much nonetheless.

Anthony Albanese congratulates Treasurer Jim Chalmers on Tuesday night. The prime minister wants to take all the adult roles, and leave the Coalition with nothing but kids’ stuff.

Alex Ellinghausen

How do you know if it’s “too much”? Because it blows up the economy. This is the charge that Peter Dutton is levelling at the government now. He’s right to highlight the risk – especially at a moment of high inflation, as Australia is experiencing today.

If a blast of net new government spending were to explode into the economy now, it would push up demand, push up prices and leave the Reserve Bank no option but to push up interest rates yet further in response.

No one would care whether the budget was in surplus or not. It’d be throwing high-octane fuel on the inflationary fire and Dutton could accuse Labor of bungling the nation’s finances and wrecking the economy. Justifiably. Labor would have shown that it couldn’t be trusted with the nation’s finances.

So, is Labor’s budget about to drive interest rates higher and blow up the economy? The government says no – it is subsidising power bills, medicines and childcare so these services will be cheaper. The result will be a downward push on inflation amounting to 0.75 of a percentage point, according to the Treasury. This is an incomplete gauge, however. It counts only part of the budget and not its overall impact.

The opposition says yes – because the budget projects that the government’s policy decisions will add net new spending of $21 billion over the next four years.

What about economists? Some say yes, others no. Ronald Reagan liked to say that economists are people who look at something and say, “It works in practice, but will it work in theory?” In other words, what’s happening in practice? The best truth-teller is the behaviour of the financial markets in response to the budget. And the markets are serenely untroubled.

The day after the budget, the market in futures contracts on the cash rate – a market whose purpose is to allow institutional investors to bet on future movements in the Reserve Bank’s official interest rate – was trading at prices showing only a 20 per cent chance that official rates would rise by August. Conversely, this market was indicating a 60 per cent expectation that the official rate would be cut by the end of this year as inflation eases.

The major credit ratings agencies – Moody’s, S&P and Fitch – were in agreement that the budget demonstrated fiscal discipline. Moody’s said it was “credit positive”. So the markets and the credit rating agencies agree with the focus groups.

Independent economist Saul Eslake, who over decades has shown fearlessness in criticising either side of politics, explains: “The net impact of policy decisions of $21 billion over four years is 0.2 per cent of GDP – which is trivial. Any impact on official interest rates is likely to be marginal and hard to detect.”

Eslake adds that the government arrived at a very delicate balance: “The economy is forecast to slow to GDP growth of 1.5 per cent, with unemployment increasing by 1 per cent over the next two years. So it wouldn’t have been wise for the budget to have detracted from growth.” Treasurer Jim Chalmers arrived at the sweet spot, according to Eslake, neither pushing interest rates up nor growth down.

The polling firm for and , Resolve Strategic, in March surveyed voters to ask which of the major parties they thought better to handle various areas of national policy. Of the 17 fields polled, Labor was ahead on 14, everything from health, education, aged care, the environment jobs and wages, to foreign affairs and trade.

The Coalition was competitive in only three – financial management, economic management and defence. “It’s exactly those areas that have been proven to be Labor’s Achilles’ heel for a quarter-century,” observes the pollster, Jim Reed. They’ve been the Coalition’s roads to victory. The budget makes a strong start to shut off the first two, turning them into cul-de-sacs.

As for the third, defence, the Coalition surrendered its traditional strong lead in the last months of its last term under Scott Morrison. The news that the Solomon Islands had signed a security agreement with the Chinese Communist Party cost the Coalition a great deal of credibility.

The result? Labor is now competitive in this area, too. The Resolve poll in March had Labor ahead by 2 per cent on defence and national security, effectively level-pegging. Labor hopes to take the lead in defence, too, as it implements its defence strategic review in the years ahead.

Political analysts have long considered these three fields – managing the finances, managing the economy, and defence – to represent the “daddy” aspects of national political persona, traditionally dominated by centre-right parties the world over.

The centre-left parties have been seen to excel in the more “caring” fields of health and education: the “mummy” aspect. Albanese is seeking to make Labor the mummy and daddy party, taking all the adult roles, leaving the Coalition with nothing but kids’ stuff.

Of course, the Coalition won’t simply admit defeat and walk away. It will leap at any opportunity to try to find new advantage. The Coalition fumbled its traditional areas of strength; Labor hasn’t yet taken possession of any. But the contest is now well under way.

Looking for lines of attack on the budget, the Coalition is reopening another time-tested road to conservative victory – immigration. Dutton is homing in on the budget’s forecast of an increase in net overseas migration of 1.5 million people over the next five years. That number “is more than the entire population of Adelaide”, Dutton points out, “and you have no plan. Every city is already congested.”

He’s right. The Coalition can’t claim that it was much more parsimonious on immigration, with settings that would have delivered an increase of 1.3 million over five years had the pandemic not intruded. And the current projection includes a big post-COVID catch up of foreign students and workers returning.

But it’s a competition of perceptions. And immigration has provided powerful raw material for Liberal scare campaigns again and again. Just ask John Howard or Tony Abbott. The Coalition will give this a solid run, arguing that Labor’s “big Australia” policy will aggravate the housing crisis, the rental crisis and problems of congestion.

Labor enjoyed a modest 7 per cent advantage over the Coalition on “immigration and refugees” in the Resolve poll. But an effective scare campaign easily could reverse this lead and reopen this old avenue to Coalition victory. As one road narrows, another could be about to open.

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