Date created: 28 November 1996

Last modified: 18 November 1997



Maintained by: John Quiggin

Budget article Townsville Bulletin

Townsville Bulletin,

1995

With the 1995 Budget the Keating government has finally laid to rest the ghosts of the last election campaign. That campaign turned into an auction, with both sides promising unaffordable income tax cuts. In addition to income tax cuts, Labor offered an unfunded cut in the company tax rate from 39 to 33 per cent. The lack of any financial basis for this measures was concealed by a shift in the timing of company tax payments which deferred the Budget impact until 1996-97. Finally, on the night of his election victory, Mr. Keating promised that the unemployed would not be left behind. This commitment eventually became the Working Nation statement (an earlier proposal, more optimistically entitled Restoring Full Employment was dropped because it would have required tax increases).

In both income tax and company tax, the government has ended up delivering about half what it originally promised. The second stage of the One Nation tax cuts has finally been abandoned, with a government subsidy to superannuation taking its place. The company tax rate has been set at 36 per cent leaving the corporate sector with half of their original cut.

On unemployment, the government has adopted the strategy of Nixon in Vietnam - declare victory and get out. On the strength of one year of relatively good labour market performance and with more than 8 per cent of the workforce still unemployed, the government has announced major cuts to the Working Nation program.

Finally, no Keating budget (and despite Ralph Willis' nominal authorship this is very much a Keating Budget) would be complete without a rabbit from the hat. By promising the sale of the government's remaining equity in the Commonwealth Bank, Mr. Keating has positioned himself for the election campaign as the proud possessor of a Budget surplus.

As a political solution to the problems facing the government, the Budget is clever, even elegant. But our fundamental problems have not been resolved. Unemployment, the current account deficit and social inequality are all worse than they were ten years ago, and are not likely to get a lot better.

The most promising aspect of the Budget is that it is a dramatic improvement in responsibility compared to the promises made before the last election. If the government is re-elected, it will be in a position to start tackling our real problems.

John Quiggin is Professor of Economics at James Cook University and author of Great Expectations: Microeconomic reform and Australia, published by Allen & Unwin.

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