Budget 2014 and the politics of ‘class warfare’

| May 16, 2014

The national budget presented this week has been met with resistance and has become a serious electoral gamble. Dominic O’Sulllivan says that some of the budget’s more far reaching measures won’t pass the Senate.

Joe Hockey’s first budget does not respond to a fiscal emergency;  there is nothing inherently unusual or alarming in running what is, by international standards, a  manageable deficit. Instead, the budget presents s a distinct position on the role of the state that both signals a shift from more recent Liberal party philosophy and provides a stark contrast with other parties. It gives the ALP a very clear philosophical reference point from which to define itself as an alternative Government.

The budget restores small government as a core Liberal party value and, with the exception of the paid parental leave scheme, firmly rejects the expansive middle-class welfare that distinguished the last Coalition government. Although grounded in long-established small government liberalism, the budget’s political risk is the likely alienation of John Howard’s electorally significant ‘battlers’.  Its success rests on how well the Coalition can entrench wasteful big government as the previous administration’s legacy and only real alternative. Labor must find a credible, philosophically coherent, middle ground and propose it with conviction and the organisational discipline that eluded the party in Government.

The budget asks significantly more of low and middle income earners for whom the $7 Medicare co-payment represents a greater proportion of earnings and for whom changes to the Family Tax Benefit and abolition of the Schoolkids Bonus represent significant reductions in disposable income. Yet, the most striking illustration of the ‘class warfare’ that the budget confirms is the removal of superannuation co-payments for people earning less than $37,000 a year while retaining tax concessions benefitting workers in the higher tax brackets, at annual cost of $32 billion, which well exceeds the sum to be cut from public spending. This particular contrast illustrates that the ‘deficit levy’ on the wealthiest tax payers does not, in real terms, share the burden more equitably. The levy is temporary and its cost to people earning over $180,000 is significantly less than the benefits that these taxpayers accrue from the superannuation concessions. It is, like the freeze on Parliamentary salaries and the phasing out of the Parliamentary Gold Pass, intended as a distraction of political convenience, rather than an attempt to ensure each citizen’s equitable contribution to a balanced budget

While the Coalition does have a mandate to balance the budget; that may matter little as the idea of fiscal prudence shifts from an abstract ideal to real measures of austerity that effect real voters’ disposable incomes. It is the disproportionate impact on Howard’s ‘battlers’, or Menzies’ ‘forgotten people’ whose electoral significance those leaders understood, that makes this budget a serious electoral gamble and unequivocal statement in the politics of ‘class warfare’.

The budget also shifts the terms of debate on the Commonwealth’s role vis-à-vis the states. It cuts $80 billion from schools and hospitals with the intention that the states take that share of the Commonwealth’s responsibility, but without the authority or capacity to raise the necessary revenue. Already, the implications for co-operative federalism are emerging with Queensland’s Premier, Campbell Newman, correctly identifying these cuts as an attempt to ‘wedge’ the states into arguing for an increase to the GST, which would be the states’ only source of sufficient revenue.

What may, however, diminish the inevitable unpopularity that will follow this budget is the Senate’s likely failure to pass some of its more far reaching measures, ironically, to leave the Coalition with not quite such an unpopular record to defend in 2016. The Senate’s balance and unpredictability poses real difficulties for the government which cannot expect its budget to pass that House without significant amendment. Given the budget proposals and the unpredictable voting patterns that will emerge in the Senate, the budget legislation’s passage through that House will pose particular difficulties for the government, and there are already indications that the Medicare co-payments, fuel excise increases and, perhaps, even the deficit levy will not pass.



  1. Allan Catlin

    Allan Catlin

    May 24, 2014 at 11:45 am

    the budget

    Thanks, Dominic, for putting this in perspective. I wish your story was the headline around Australia. Could it really be the Abbot government's plan to lead the voters to think he's not so bad, and therefore we'll all vote Liberal next election when all is forgotten? I'll maintain the rage unless there is real change in the Government approach to us all, not just the rich, like the IPA and others.