May 21st 2005

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Articles from this issue:

COVER STORY: CANBERRA OBSERVED: Costello's latest budget - do the figures add up?

EDITORIAL: Australia's economy after the Budget

SCHOOLS: Our failure to provide good books for boys

DRUGS: How to crack down on illicit drugs

ABORTION: Public turning against late-term abortions

IN VITRO FERTILISATION: Why Abbott is right about IVF funding

TRADE: New Trade Theory challenges free trade

SUPERMARKETS: Big retailers set to hit farmers even harder

COMMUNISM: Remembering the Vietnamese exodus

ENVIRONMENT: Kyoto Protocol unleashes the friendly atom

Support, don't abort (letter)

Cheaper insurance for pro-lifers? (letter)

Australia's trade woes (letter)

Public inaction over illicit drugs (letter)

OBITUARY: Vale Hugh Slattery: tireless fighter

OBITUARY: Tribute to Sir Joh Bjelke-Petersen

THE SUPREMACISTS: The Tyranny of Judges and How To Stop It, by Phyllis Schlafly

THE PELOPONNESIAN WAR: Athens, Sparta and the Struggle for Greece, by Nigel Bagnall

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COVER STORY: CANBERRA OBSERVED: Costello's latest budget - do the figures add up?


News Weekly, May 21, 2005

The Reserve Bank has recently been trying to dampen spending. If it decides that the Federal Treasurer's latest tax cuts risk over-stimulating spending and re-igniting inflation, it may decide to jack up interest rates.

A cynic might suggest Treasurer Peter Costello has just spent $22 billion of taxpayers' money in an attempt to win popularity with those very same taxpayers by giving it back to them in the form of tax breaks.

But Mr Costello's 10th and possibly last Budget was arguably as important a roadmap for his own future prime ministerial ambitions as it was for the Government's fourth-term agenda.

After a fortnight of damaging division within the Government between John Howard and Mr Costello over "if, when and how'' the Prime Minister would step aside for his younger rival, Mr Costello was determined to make his mark.

And he did - by sweeping tax cuts, building on the Government's economic credibility, and what has turned out to be a dubious attempt at welfare reform.

Given that all published opinion polls suggested that Mr Howard is at least twice as popular with the voters as his Treasurer, a massive tax cut should, in theory at least, shore up Mr Costello's standing.

If he has plans to take over the reins from Mr Howard next year, this would be the base station from which he would launch his campaign to sell himself to the Australian people over the next 12 months.

Perhaps, as with no other Budget before, Mr Costello claimed it as his own in an attempt to recapture his position at the centre of government planning and policy-making.

To a certain extent, he has managed to do this.

Firstly, he has turned upside-down conventional Budget wisdom by offering tax cuts in the first year of the electoral cycle at a time when the economy is turning down and higher petrol prices and mortgages are beginning to hurt.

Secondly, he has skewed the tax cuts to the middle to upper income levels who comprise a small percentage of the total workforce - presumably the plan will be to deliver tax cuts for the great bulk of Australians either next year or in the Budget preceding the next election.

Thirdly, he has endeavoured to maintain the Government's fiscal reputation by retaining a handsome surplus as well as creating a future fund to provide for the retirement benefits of public servants.

Finally, Mr Costello has announced the Government's plan for welfare reform which, after all the fanfare, has turned out to be the weakest element in the Budget.

Basically, the Government wimped out on welfare reform.

It has taken a tentative step towards encouraging, but not forcing, single mothers with school-aged children into part-time work, but completely dropped the ball on disability pensioners.

Everyone currently on the disability pension will have their benefits protected and only people who apply for the Disability Support Pension (DSP) from July 1 next year will have tougher eligibility criteria.

In fact, the Government may have created a monster with two classes of disability pensioners - current recipients who barely have to explain their circumstances and future recipients who will have lower benefits and tougher "please justify'' requirements.

Why the Government stepped back from attacking the burgeoning disability pension problem, which has grown to 700,000 recipients, has not been explained.

Possibly, Cabinet decided it was simply too difficult to launch an all-out attack on single mothers and disability pensioners in one year.

While many of those 700,000 DSP people are genuinely disabled and deserve a respectable pension under any system, tens, possibly hundreds of thousands of them, are simply the disguised and difficult unemployed - men in their 50s, people with periodic depression, and others with bad backs and the like who are just as capable as single mothers of undertaking part-time or occasional work.

But the real question, and Mr Costello's $22 billion test of success, will emerge over the coming months and will come in the form of the actions of the Reserve Bank in Sydney.

If Australia's central bank decides that the tax cuts will simply fuel spending, which it had been trying to dampen, and re-ignite inflation, it may decide to jack up interest rates.

This would certainly rub off the political sparkle Mr Costello had been hoping his 10th Budget would produce.

In all, the Budget appears to have been a politically savvy document, but its longevity (and Mr Costello's) will depend on the continued strength of the Australian economy and his banker friends at Martin Place.

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