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Rewards and Punishment

Wednesday, 10th May, 2006

It is a fundamental rule of politics: governments do not get rewarded when they give things to people but they get punished when they take them away .

By that measure last night's budget preserves the political status quo. There were lots of winners who will not necessarily be grateful for what they received but virtually no losers who woke up angry.

Labor is following the fundamental rule in its budget response. It is quietly supporting what the Treasurer has done and more noisily criticising what he has not done.

In political terms Messrs Howard and Costello have been typically astute . They have shared around enough of the revenue boom, essentially gained from taxing the mining sector, not to be attacked as misers while keeping enough back to provide a war chest for next year's pre-election budget and campaign promises. Only an unlikely collapse in the world economy, especially China's, will prevent another whopping surplus to try and buy votes with.

Last night's budget estimates that future surplus at $10.8 billion. Budget estimates, as I cautioned yesterday, are just that - estimates. The history of past predictions is shown in the following table.

In nine of 10 years where final figures are in, the surplus has been higher than estimated. I believe Treasury will again have erred on what they think is the prudent side .

See also:
Interest Rate Fears
Our Team this Year, the Masses Next
Give Them the Vision Thing

His budget preserves the political status quo.