Despite the Abbott government’s success in abolishing the carbon tax, the mining tax, stopping people-trafficking from Indonesia, and negotiating trade deals with Australia’s largest trading partners, China, Japan and South Korea, its first year of office will be remembered for its failures.
Before the 2013 election, the then Opposition repeatedly criticised the government’s economic management, and promised to end its waste and extravagance, and return the budget to surplus.
It also promised a government of “no surprises”, a promise it was never able to deliver on, but which resonated with an electorate which had become sick of government in-fighting and leadership uncertainty.
The new government faced political difficulties in implementing an austerity program when it had failed to specify how it was going to balance the budget when in opposition.
Central to its problems are measures contained in the 2014 federal Budget, but not foreshadowed before the federal election or before the budget was delivered. They include the Medicare co-payment, the increase in payments for prescription medicines, the indexation of the petroleum levy, deregulation of university fees and cuts to public broadcasters, the ABC and SBS.
Since its election in September last year, the Abbott government has had to deal with a hostile Senate. When Labor and the Greens blocked the repeal of the carbon and mining taxes, public opinion was with the government.
After the new Senate took office on July 1, there was an expectation that the minor parties and independents would co-operate with the government to repeal the new taxes.
After months of stalling, this was finally achieved.
However, the government’s budget has been a complete fiasco, with Treasurer Joe Hockey’s unpopular measures to raise new revenue repeatedly blocked by the Senate.
When this has happened in the past, the government has been able to secure passage of its legislation through concessions to minor parties, together with the threat of an early election.
However, this option is not available, as the community has broadly supported the Senate’s decision to block the government’s measures, and an election is unlikely to change the composition of the Senate.
The Treasurer’s problems have been compounded because prices of Australia’s major export commodities have fallen dramatically over recent months. The price of crude oil has fallen from above $US110 a barrel six months ago to less than $US70 today. Over the same period, coal prices have fallen by over 10 per cent, and iron ore prices by a massive 30 per cent.
Falling prices of iron ore, coal and natural gas directly affect government revenue, because mining royalties have become a major source of state governments’ income, and the profitability of mining and petroleum companies has been a significant source of Commonwealth revenue.
At the very least, all this means that government plans to return the budget to surplus in three or four years have been thrown into disarray, with the prospect that the budget deficit could well be even larger in 2015-6. The government’s reputation for fiscal management has taken a battering — even if the cause is to be found in the log-jam in federal parliament.
The only saving grace is that, with low interest rates, the cost of servicing the public debt is not increasing significantly.
The fall in state revenues has led to calls for an increase in the goods and services tax (GST), currently at 10 per cent, which is shared among the states. However, any increase in the GST would be political suicide for the federal government which introduced it.
The main beneficiary of the present uncertainty is the Labor Party, which has distanced itself from the corruption scandals which discredited the party in New South Wales, and from the misconduct of unions revealed in the royal commission into trade union governance and corruption.
To add to the government’s woes, the slide in the Liberals’ standing in the opinion polls was followed by the defeat of the Victorian Coalition government, the first one-term government in Victoria since the 1950s.
The credibility of both the Prime Minister and his Treasurer are now on the line. Mr Abbott’s task in 2015 will be to rebuild the confidence of the public in his leadership. It would be a mistake to believe that tinkering with his proposed paid parental leave scheme will address the issue.
It will require an acceptance that it is now virtually impossible to get unpopular budget measures through the Senate, and the government’s options will be restricted to the Appropriation Bills which Labor has said it will not oppose.
A starting point could be to look hard at areas of duplication between the Commonwealth and the states, and reduce the Commonwealth role in areas such as health, primary and secondary education, aged care and child care to one of financial oversight, rather than intervention and control. Any such change will need to be fully explained to the Australian people.