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John Quiggin

Climate right for the next big idea

John Quiggin Australian Financial Review

10 May 2007

Peter Costello’s 12th Budget has widely been described as “clever”, but as lacking a “big idea”. An obvious line of attack, which Kevin Rudd has already foreshadowed, and is likely to push further in his reply tonight, is that, after more than a decade in office, the government has simply run out of ideas.

Against this, it might be argued that we neither need nor want big ideas in Budget’s any more. After the great ideological debates of the 20th century, there seems to be a settled, broadly social democratic consensus about the appropriate role and size of government. The Commonwealth government share of revenue and expenditure in GDP has been broadly unchanged, at the 21 to 22 per cent inherited from Labor (exact comparisons are tricky because of the disputes over classification of the GST and associated transfers).

Thanks to the real and nominal bracket creep associated with a progressive tax system, and the procyclical nature of company profits, national governments can hold constant the revenue share of GDP while still handing out regular tax cuts. The 2007 Budget maintains this practice, as well as the tendency for tax cuts in election years to give larger proportional benefits to low income earners.

It’s notable in this context that some of the most popular initiatives in this budget represent a reversal of measures taken in the government’s first time, when it pushed a small-government position through exercises such as the National Commission of Audit. John Howard explicitly recognised the demand for better public services in the 2004 election campaign, and the current budget reflects this.

The dental care initiatives bring the Commonwealth back into a field it abandoned in 1996, when the Commonwealth Dental Health Scheme was abolished. The extra money for universities contrasts sharply with the cuts introduced by then education minister, Amanda Vanstone. And there’s more money for alternative energy, an area that’s been cut in the past.

Overall, the new expenditure that’s been announced consists of lots of little things, some better than others, but none likely to make a fundamental difference to the way people perceive the government.

A Budget like this would make political sense if the government were cruising towards victory, and needed to shore up its support. But unless the government knows something that is not apparent in the published opinion polls, that’s not the case.

It seems more likely that the government is saving up something big for the election campaign. One possibility is the Melbourne-Brisbane inland railway proposal, which was the subject of some pretty confident leaks, but didn’t get substantial funding in the government’s infrastructure package. Maybe the government is planning to go the whole hog and announced support for the plan for an inland rail line from Melbourne to Darwin. This proposal has been kicking around for years, and Melbourne-Brisbane can be seen as the first leg.

Another possible area is water. After the buzz surrounding the $10 billion water plan announced in January, the Budget was a big disappointment. Most of the expenditure has been deferred to the out years. The most important initiative of all, the repurchase of overallocated water rights, receives a derisory $27 million for 2007-08. It seems as if this bold initiative has fallen victim to National Party resistance, but perhaps John Howard and Malcolm Turnbull have a rabbit waiting to be pulled from the hat during the campaign.

The most plausible candidate though, is climate change. The government can scarcely imagine that a subsidy program for solar panels is going to do much to address the problem, or the political damage caused by a decade in which the main response to climate change has been to wish it out of existence.

It seems safe to assume that the Task Group on Emissions Trading, due to report on 31 May, will come out in favour of the general idea of emissions trading. However, the debate has moved so fast that the Task Group’s terms of reference, already seem obsolete. When the Task Group was announced, the government was still opposing any target for emissions reductions. Now the only serious question is whether the 50 to 60 per cent reductions proposed by Labor will be enough.

If the government is going to come up with a big new idea for the election, it could hardly do better than to announce ratification of Kyoto, along with a commitment to move Australia to the forefront of international emissions trading as soon as possible.

John Quiggin is an Australian Research Council Federation Fellow in Economics and Political Science at the University of Queensland.

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