Federal budget 2017: the Coalition's big pivot to regain voters' trust

Prime Minister Malcolm Turnbull  with Minister Senator Simon Birmingham:  trying to sort out the post-Gonski mess will ...
Prime Minister Malcolm Turnbull with Minister Senator Simon Birmingham: trying to sort out the post-Gonski mess will be challenge. Andrew Meares

Ever since he became Minister for Education and Training in September 2015, Simon Birmingham has had his hands full juggling some of the most contentious, and expensive, parts of the federal budget.

There was the vocational training system to fix. This week it has been getting a restructured childcare funding system – promising more funding to lower income families at the expense of higher income ones – through the Senate. From next month, there is schools funding and higher education to fix.

Birmingham's portfolio includes the sorts of services people take as holy writ of what governments do for them.

These expectations were badly shaken up by the disastrous 2014 budget. It is widely recognised within the government that that budget shook to the very core voters' belief that the Coalition had any fundamental commitment to providing them with basic services such as hospitals and schools.

Reversing the damage

The political task of the 2017 budget, as it is gradually emerging in the public utterances of the Prime Minister and the Treasurer, is not just about trying to reverse the damage of the 2014 budget, but addressing the issues of equity and inequality that have underpinned much of the discontent that fed the Brexit and Trump phenomena, and the resurgence of One Nation at home.

If the budget successfully pivots the government's political message, it could also go a long way to finally giving voters a less suspicious bede on what the prime minister stands for. Particularly if the government feels compelled to jettison the remaining so-called zombie spending cuts and its plans for company tax cuts for big business – on the basis they will not get past the Senate – and argues instead that other policies can deliver the jobs and growth agenda it promised at last year's election.

The equity issue, as it is emerging within the government, is not just about redistribution of incomes through the tax system.

The accompanying graph tells the story best. It shows the impact of government service provision, welfare payments and taxes across the community.

In-kind transfers represent the sort of basic services that people expect governments to provide, like access to hospitals and healthcare services and education.

The thinking is that in an era of low wage growth and employment uncertainty the "value" of these services only becomes more important to people's sense of economic security even as the cash value of the money they bring home each week seems to diminish.

So while the government remains constrained by budgetary pressures on what it can deliver in terms of tax relief, or in terms of what it can continue to provide in terms of welfare payments, it does have room to move in changing the signals it delivers in these areas of service delivery.

The post-Gonski nightmare

Simon Birmingham is due to meet with his state counterparts on April 7 to discuss how he plans to get the federal government out of the political nightmare of the post-Gonski schools funding hole, where most voters' take is that the Coalition has stopped needy schools getting extra money.

But the big story here is that, within the schools sector, there is now a clear expectation forming that there will be a substantial reshuffling of funds in the new schools funding agreement that Birmingham will present.

That reshuffle will involve a shift away from rich non-government and independent schools and to under-resourced government and non-government schools.

The Coalition's core argument about inequality will remain that the greatest risk to inequality is joblessness.

But there are three strands to the equity issue on top of that which emerge from the government's recent statements: one is about income distribution; one is intergenerational, and one is about the geographic distribution of economic opportunity.

To even the slightly cynical that last one, of course, has "THE NATS" written all over it.

Good and bad debt

But whether it does or not, prepare yourself for a lot more talk about "good debt" and "bad debt", with the "good debt" being a major swath of borrowings specifically earmarked for infrastructure projects, in line with OECD arguments that countries like Australia should make the most of historic low interest rates to borrow for infrastructure renewal.

This, of course, doesn't take any pressure off the government to address recurrent spending problems. And that will still involve a lot of political pain.

But building stuff, once again, offers the spectre of creating jobs – particularly in regional communities which weren't ever likely to get any knock-on effects from lower company taxes. Think Tasmania as an example.

That doesn't necessarily explain everything the government is doing, however.

You may remember that in the 2015 budget the government announced the Northern Australian Infrastructure Facility, a $5 billion fund about which virtually no details existed.

After considerable faffing about, it was finally established as an entity in the middle of last year.

But just compare its exceptionally vague structure with the "every detail nailed down" Clean Energy Finance Corporation of which the Coalition has been so generally hostile or ambivalent.

The NAIF, supposedly an independent agency, still only has a handful of staff and scarce internal documentation.

The NAIF boondoggle machine

There has long been suspicion about what the NAIF is actually there to do, suspicions only magnified amid suggestions the fund will give a concessional $1 billion loan to Adani to partly fund a coal railway to its massive Carmichael coal mine.

Environmental and community groups led by former Greens Leader Bob Brown this week launched a campaign objecting to the idea of taxpayers putting such a huge amount of money into a private-sector project.

Sure, these groups are all against the Carmichael mine. But they surely have a point about what the hell we are doing – in an era of budget constraint – providing massive subsidies to a private-sector resources project like this one.

The answers from government ministers on this are just too cute by half.

Minister for Resources and Northern Australia Matthew Canavan is just one who keeps protesting that the project will be assessed by the NAIF's independent board,while in the next breath telling ABC radio on Thursday morning that, in fact, he had spoken to Adani about the proposal on a recent visit to India.

"There's a lot of focus on Adani," he said, "but it's also about attracting new mines in the area as well. If there is a rail line built, that will allow new mines to move in, thousands of more jobs to be created, and for our country to provide even more of the world's energy supplies and make lots of money and create jobs from doing so."

It sounds like a giant boondoggle. Something a still struggling Coalition needs like a hole in the head as it tries to rebuild its economic management and equity credentials.

Laura Tingle is The Australian Financial Review's political editor.