Suddenly we've a budget that will do something.
Until now, Scott Morrison and Malcolm Turnbull have had both hands tied behind their backs. They know that our bursting cities need infrastructure: railways, roads and power stations. But they know that if they borrow big to build that infrastructure they'll weigh down their budget deficit which, in the view of one private sector commentator, won't move into surplus until Wyatt Roy gets the pension.
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The month of budget rabbits
With a month left for the final push and shove and lobbying that goes into formulating a budget Scott Morrison has to pull several rabbits out of his hat. Michael Pascoe comments.
Roy was until last year the youngest-ever member of Parliament.
If they restrain the deficit they can't build what we need, no matter how worthwhile, and if they do build what we need they can't restrain the budget.
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Ordinary Australians aren't so constrained. So long as you and I spend less than we earn on day-to-day obligations (including mortgage payments) no one thinks we are irresponsible.
If we spend up big to buy a house, and fund it by borrowing, no one sensible says, "I've gone into deficit." But that's what otherwise sensible people say every time the government borrows to spend up big on something worthwhile.
The exception is the national broadband network. An accounting quirk means the government's spending on the NBN doesn't add to the measured deficit (although interest payments on the borrowing to fund that spending do) and no one's too concerned.
On Thursday, Morrison will tell business economists in Sydney that he plans to treat other worthwhile investments in the same way.
He'll say that it is "wise for governments to borrow, especially while rates are low, to lock in longer term financing and invest in major growth-producing infrastructure assets, such as transport or energy infrastructure", but to rack up debt to pay for welfare and everyday expenses is "not a good idea".
In the past, budgets haven't distinguished between "good debt" that builds something worthwhile and "bad debt" that funds ordinary spending.
"Investments in productive capital projects provide returns that will be enjoyed by future generations," Morrison will say. "This is why it is important that we think about these investments in a different way to recurrent spending."
The change will "make clearer the share of expenditure that is contributing to investment that increases productive capacity and produces future income, and the debt that is being incurred to deal with everyday expenditure".
It is it wise for governments to borrow, especially while rates are low.
Treasurer Scott Morrison
It will be done by reporting a "net operating balance" alongside the traditional underlying cash balance. The net operating balance has always been available for those that want to find it, but it's been buried rather than put up front.
The change will bring the Commonwealth budget "into line with the states and territories". Yes, Australia's states have always focused on the net operating balance. That's why they've been in "surplus" in circumstances in which the Commonwealth would not be.
Morrison's audience is likely to approve. It approves of state budgets. And the ratings agencies should as well. With day jobs analysing the health of private companies, they are well aware of the difference between recurrent and capital spending.
It's how it's done in Canada, how it's done in New Zealand.
Within weeks of taking over as Reserve Bank governor late last year, Philip Lowe signalled that he would like it to happen here.
While he wanted the government to restrain ordinary spending, he had no objection to "spending on infrastructure, where this is backed by a strong business case".
"Such spending can provide support for the economy and can help generate the productive assets that a prosperous economy needs," he said. "Done well, infrastructure spending is not inconsistent with establishing a better balance between recurrent spending and revenue."
And that's the downside. What if it's not done well? What if the infrastructure projects are bad ones such as railways that lead nowhere? What if these bad projects are given green lights because they are ''off budget" while more worthwhile projects such as spending on health or education are turned down because they are "on budget"?
It's one of the reasons why the Treasury hasn't been keen on the idea in the past. Another is that it has traditionally been keen to use whatever tools it has at its disposal to make spending and debt look scary.
Turnbull and Morrison's bid to redefine the deficit will only work if they establish strong protections to ensure that only worthwhile infrastructure projects get approved. Labor committed billions to the national broadband network without a cost-benefit analysis. A repeat of that from the Coalition would see the rating agencies downgrade Australia regardless of their sophisticated understanding of the difference between capital and operational budgets.
So long as they put those protections in place, Turnbull and Morrison will be able to borrow as much as they need from here on, pointing out correctly that their day-to-day spending is in check.
What was shaping up to be a boring budget may turn out to be one of the most significant on record. Governing may be about to become more exciting.
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