Budget on May 8 an opportunity for Turnbull revival

Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

 

Next month’s budget provides the opportunity for a political reset for Malcolm Turnbull after his coalition government slumped to 30 consecutive Newspoll losses against Labor this week.

It was one benchmark the prime minister set for rolling Tony Abbott as Liberal leader in September 2015, although Turnbull’s position looks safe for now without a credible replacement.

Ministers like Peter Dutton and Treasurer Scott Morrison have indicated their prime ministerial aspirations “in the future”, however, opinion polls suggest they have quite a lot of work to do to get the electorate to back that idea.

The latest Essential Research survey found Turnbull is still seen as the best person to lead the Liberal party at 24 per cent, followed by Julie Bishop on 17 per cent, Abbott on 11 per cent, Dutton three per cent and Morrison and Christopher Pyne on two per cent.

‘Someone else’ scored 14 per cent, while ‘don’t know’ led the pack on 27 per cent.

The May 8 budget could well be the last before the next federal election, even though Turnbull insists a poll is at least a year away.

It will provide a platform for the government to congratulate itself over its economic management as a budget surplus draws ever closer.

Morrison is sticking to his forecast for a surplus by mid-2021, although recent monthly financial accounts show government income is running ahead of schedule.

As of February, the underlying budget deficit was $19.8 billion, $8 billion lower than had been anticipated after eight months of the financial year.

This was the result of tax receipts being $5.5 billion higher than predicted and payments $3 billion lower.

However, a budget surplus, whenever it occurs, doesn’t pay the weekly grocery bill.

The budget will be brought down at a time when there has been little improvement in wages growth, which has pay awards pretty much tied to the rate of inflation.

While the government can’t impose pay increases outside the public sector, Morrison is promising “tax relief for middle income earning Australians”.

What form this relief will take, Morrison says, we will have to wait until May 8 to find out.

Most recently, the government increased the middle-income 32.5 per cent tax bracket from $80,000 to $87,000, keeping 500,000 Australians from having to pay the second highest tax bracket of 37 per cent.

You would think personal tax cuts, in whatever guise, should pass through the parliament without a hitch, unlike the government’s business tax cut from 30 per cent to 25 per cent, which remains in the pending file for big firms.

Whether a tax cut, along with other potential initiatives in the budget, will be enough to change the mood of the electorate remains to be seen.

Both the government and the Reserve Bank face a major challenge from weak wages growth.

Central bank governor Philip Lowe says Australians are used to getting wage increases one or two per cent above the rate of inflation, but for the past four or five years there has been very little growth in real incomes.

This is a concern to Lowe because people had previously taken out home loans on the premise of above-inflation increases.

“So people are unhappy, not only just because the previous trend isn’t continuing … many people feel the cost of living pressures are very strong,” Lowe told a Perth conference this week.

For the Reserve Bank, slim wage growth is a problem because it is preventing it from achieving one of its goals of average 2.5 per cent inflation growth, keeping interest rates lower than Lowe would prefer.

“It’s a problem for me, but it’s a broader problem for the political class because people are angry and when they are angry, they kind of vote for different things,” Lowe said.

And probably why Turnbull can expect the 31st negative Newspoll in a few weeks time.

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