Thus Spake Mungo: Hockey’s budget hangover

Our ever cheerful Treasurer Joe Hockey reports that the reaction to his budget has been fantastic. Well, enjoy the party Joe, because all the signs are that the morning after hangover is going to be a doozy.

Respected economists are already speaking publicly about the R word – a recession that would end our apparently endless boom, cutting down 25 years of uninterrupted growth, not with a whimper but with a dull thud.

The warnings have been there for a while – sluggish retail spending, rising unemployment, and overall growth based almost entirely on a housing boom that itself is starting to finally slow down, even in Sydney. And now the big crunch: investment stalling. Not only has investment in mining plummeted – as was only to be expected – but investment in the rest of the market is contracting to the point where it will soon be barely visible.

Hockey, as always, insists that the glass is still half full – his budget bonanza will kick-start small business and that will fix it all. But the problem is not small business, with its demands for a few laptops and the hope of employing the odd extra casual; we need the big projects that only the heavy end of town can manage, and in the current dire circumstances they are simply not interested.

Ludicrously, Hockey says that it is all Daniel Andrews’ fault – the Victorian Labor premier cancelled the East-West link project. And indeed he did. But Andrews not only found it to have been essentially uncosted and probably uneconomic, he wants to replace it with more viable infrastructure – no black holes there.

The Parliamentary Budget Office, an unbiased and highly credible source, warns us that in fact the budget deficits will stretch out without foreseeable end, because once again the government has fudged the figures.

The hard fact is that it has little to do with the peripherals, and they include Hockey’s budget bonanza of benefits, bonuses and bribes – a momentary splurge which will quickly be forgotten if it has not been already. As the Reserve Bank has indicated, the problem is in danger of becoming immured in negativity, and the Bank itself is unable to pull it back together.

Cutting interest rates is just not doing the trick, although, finally, the Australian dollar has fallen in sight of its long hoped-for target. But even this news is equivocal – sure, exports should pick up, but imports will become more expensive, and they include many of the consumer goods customers are already reluctant to pay for.

And now comes the news that the Parliamentary Budget Office, an unbiased and highly credible source, warns us that in fact the budget deficits will stretch out without foreseeable end, because once again the government has fudged the figures – Hockey’s Treasury department has counted the 2014 budget proposals cost reductions to be taken as being signed, sealed and delivered by parliament, when in fact they are stalled in the senate indefinitely, if not outright rejected.

So the prospect is grim – grimmer than almost anyone is prepared to admit, with an election now just a year and half away.

The government, of course, blames a stubborn and intransigent opposition; the opposition blames an unfair and mendacious government. But whatever the explanation, the fact is clear – the money is not forthcoming. And to pretend it is, and that Abbott and Hockey are charting a believable path to a sustainable surplus in the foreseeable future is just another their fantasies.

So the prospect is grim – grimmer than almost anyone is prepared to admit, with an election now just a year and half away. Optimistic backbenchers – those of them who still have faith in their leaders – talk about the 1993 election when Paul Keating snatched victory in the teeth of the last recession. But Keating was a far more formidable and more steadfast politician than either the current prime minister or his treasurer, and he had John Hewson and the GST to help him.

Abbott is clearly hoping that the threat of a revived carbon tax from Labor will be a satisfactory substitute, but old, known bogies are seldom as fearsome as new ones. He can and will rail about the past horrors of Kevin Rudd and Julia Gillard, and then there is the shadowy spectre of Bill Shorten; but it will be an argument about the least worst option, not the triumphant best that was promised in 2013 – and how long ago that seems.

The irony is that the economy was, and still is, supposed to be the Liberals strength; their constant theme is how Labor would spend, waste and destroy – and they would always be there to rebuild and repair the damage. But if that narrative unravels – and it is hard to see anything that will reverse it – sooner or later the electorate will be forced to the recognition that the emperors have no clothes. So perhaps it has not been entirely smart for Abbott and Hockey to have spent the time since the budget demanding that the voters should focus on the hip-pocket issues – the budget measures are the main game, the only real game, and all the rest are side issues.

And maybe the inevitable distractions have not been entirely unwelcome. Most of the recent headlines have not been about the budget, but about various aspects of terrorism – and although the latest bunfights and leaks in the cabinet were not quite what was intended either, at least the whole national security issue has, by and large, remained a definite plus for the government. Shorten and some of his colleagues have hardly attempted to object as the cops and spooks continually ramp up the ante; the fear of looking soft has clearly trumped logic, caution and reason as the debate runs further out of control.

And of course there are other distractions; gay or same sex marriage (now given the more dignified title of marriage equality) has come across the seas from Ireland with a kick along from Shorten to be countered by the demand from Abbott that the parliament (by which of course he means the government) should own the issue. Abbott would still prefer not talk about it at all, but even his recalcitrance has its limits, and at least it will be something for the punters chat about rather than grumbling about their wallets.

And finally we have come to tampons, which no one in the government even wants to mention by name (‘sanitary products, health necessities’) but which have produced their own mini-split between Abbott and Hockey. They are now to become the centre of the tax reform debate; sure, they may only cost about $10 a year GST per user, but it’s not the price, it’s the principle of the thing.

Not quite what Hockey intended as his party stopper, perhaps, but until we get around to clearing up the empty bottles and putting out the garbage it will have to do.