Budget Doubts Enhanced, Threats to Trump

Debate on Budget

Both main sides continue to debate the second budget of the Turnbull government, with the most interesting development being the view expressed by Albanese that Labor should welcome the Coalition’s budget measures! But there is no indication from most Commentators that initial views have changed and that an improvement in the Coalition’s polling is likely to occur. In fact, doubts about the achievement of estimated budget outcomes have increased following the publication of a much lower growth in wages than assumed in the 2017-18 Budget estimates (1.9% cf 2.5%), a further fall in consumer confidence (the sixth successive occasion when pessimists have outweighed optimists), and a warning from credit agency S&P that while it kept Australia’s credit rating at AAA it also warned that it is at risk of a downside over the next two years. The improvement in the latest employment survey may help if it is sustained. But doubts continue about the survey’s reliability.

Debate also continues over whether the budget has provided adequate grants to the States for (in particular) education and health because no detailed agreement with the States was effected before the budget. Debate has also occurred over the bank levy following the revelation that Treasurer Morrison has indicated that details of the enforcement legislation are not to be revealed before the legislation is presented to Parliament.

Former Treasury Secretary, John Stone, has also had a highly critical article published in this week’s Spectator Australia (see Stone on Budget). His conclusion is

More fundamentally, the consequences of this massive philosophical U-turn for the Liberal Party (and also for the Nationals) are incalculable. Most observers expected a ‘sugar hit’ for the Coalition in the polls. Since that was clearly the aim to which this travesty of everything Menzies’ party was supposed to stand for was directed, they needed at least to be right about that. But as Monday’s Newspoll showed, they weren’t, with the Coalition primary vote unchanged on 36 per cent and its two-party preferred vote actually falling a point. Even if future polls were to improve somewhat (which they won’t), that wouldn’t ward off this budget’s destabilising effects.  Anyone for the Australian Conservatives Party?

Importantly, Stone also draws attention to the little recognised “Headline Cash Balance”, which is much larger than the “Underlying Cash Balance” normally treated as the deficit (or surplus). The difference between the two is that the former covers all Commonwealth spending including by off-budget entities, such as the NBN Co, and the purchase/sale of financial assets for policy purposes. As such, when in deficit the Headline Cash Balance has to be financed by borrowings or sale of assets. In 2017-18, for example, the estimated Headline Cash Balance is – $48,4bn (only $2.6bn less than this year) while the estimated Underlying Cash Balance is – $29.4bn ($8.3bn less). In short, the budget presentation suggesting that the Coalition made a substantial reduction in the deficit is grossly misleading: the “real” deficit is much higher than is being debated and the estimated reduction is much less.

My last Commentary (16 May) also questioned the Coalition’s claim that tax increases are needed because the Senate blocked proposed spending cuts. Yet the budget provides for substantial increases in spending in the next two years including policy decisions costing about $5 billion each year. If those decisions had not been made, there would have been no need for the tax increases. In short, the Turnbull government has also “blocked” spending cuts. This seems to have been largely overlooked by commentators.

Threats to Trump

It is apparent that attempts are being made in Washington to create an environment aimed at reducing Trump’s credibility or even allow action to consider his impeachment. Reflecting the importance of US policies and behaviour, Turnbull has made a very brief comment effectively rejecting security concerns for Australia. The Australian has editorialised on this more than once, including in yesterday’s edition (see More Media Attacks on Trump), and has been broadly sympathetic to Trump.  The ABC and SBS have also given Trump’s statements and the criticisms of him extensive coverage. On Wednesday the ABC’s 7.30 report conducted an interview with Dennis Richardson who retired just recently after many years involvement in security and foreign relations with the US (see transcript Dennis Richardson). While he was being diplomatic, perhaps his most pertinent remark was “I think we can certainly trust and rely on the United States, regardless of the personality who happens to be President at any one time.  That’s been the case since 1951 and I see no reason why it would change and when you look at some of the people President Trump has appointed, we have… we have great cause to be confident.” Another 7.30 report interview last night with a former adviser to President Bush produced a similar response, with the person interviewed pointing out that, while Trump’s popularity is down to around 40%, most who voted for him seem to continue to support him.

It is difficult to assess the situation in Washington from here. But from what has emerged so far it does seem that the concerns expressed about Trump’s statements and actions are overblown and largely come from political opponents rather than those genuinely concerned about possible adverse security implications. For example, it is difficult to see that there can be serious concern about Trump giving securitised information obtained from Israel to the Russian Foreign Minister to the effect that IS was planning to use computers as sources for bombs inside planes. Equally, although his reasons for dismissing the head of FBI have not been adequately explained, the behaviour of the head on more than one issue could be said to have warranted such action. More importantly, while Trump’s request to the FBI head to “go easy” on handling Flynn’s connections with Russia have been seen as an attempt to cover  alleged pre-election contacts with Russia, it is difficult to see that even  if such contacts did occur they amounted to an attempt to “obstruct justice” and as such a basis for action to consider legal action for impeachment. The appointment of a Special Prosecutor to investigate the extent of such contacts and their implications, which is likely to take some time, may clarify the situation.

Putting all this aside, there is no doubt that Trump is not observing what some see as the normal practices of a leader in a democracy and is failing to properly explain his policies. The former director of the CIA, Micahel Hayden, has described Trump as a “useful fool” and many will agree. But that characteristic was apparent before he was elected President as a challenger to traditional processes . The election of leaders is often followed by a period of regrets by voters who elected the person. We are experiencing that in Australia right now.  Trump will be further tested on his handling of his first current overseas trip.