Government defends budget, as polls show Labor on the nose

Federal Treasurer Wayne Swan says last week’s budget was not about opinion polls. That’s probably a good thing – the post-budget polls have been shockers.

An Age/Nielsen poll, released today, shows while Julia Gillard remains preferred Prime Minister at 47%, her lead over Coalition leader Tony Abbott has narrowed to three points, the closest the rivals have been.

Labor’s primary vote is at a record low of 31%, versus a steady Coalition figure of 47%, the survey of 1,400 people taken from Thursday to Saturday shows.

Gillard’s approval rating fell two points to a record 43%, while her disapproval rating two points to 52%. By contrast, Abbott shrugged off criticisms his budget reply was too light on details by lifting his approval rates by three points to 45%, with disapproval edging down one point to 50%.

Another poll, released on the weekend, showed just 28% believed the budget would be good for the economy, with only 11% saying it showed Labor to be reliable economic managers.

This weekend, Swan said the budget wasn’t about polls, but rather “getting the setting right for a strong, secure and sustainable economy.”

He was quick to point out praise for the budget from the likes of the Business Council of Australia, Westpac Banking Corp, Commonwealth Bank of Australia, Citi, UBS, as well as Mission Australia and the Brotherhood of St Laurence.

“It was pleasing to see the really positive reaction to the budget from such a wide range of economists, business groups, social organisations, health experts and serious commentators,” Swan said.

A report by UBS highlighted for saying the contrast between now and 2005-2007 under former treasurer Peter Costello “could not be more stark”.

Westpac chief economist Bill Evans says the Government’s target for spending growth of just 1% from 2010-11 to 2014-15 makes a “stunning comparison with the last five years of the Howard Government, when real spending growth averaged 3.7%.”

“But the comparison is distorted by the years 2008-09 and 2009-10 when, during the global financial crisis, real spending grew by 16.9% over the two years. In creating such a high base the task of slowing the growth rate of spending in subsequent years is not so onerous,” Evans says.

ANZ has described the budget as “appropriate for the current economic circumstances”, although said it will stand to be judged as a missed opportunity for failing to undertake any truly significant economic reform.

It said the Government’s assumptions of the terms of trade remaining around current elevated levels for the next few years are a “reasonable assumption”, although it leaves the Government little ammunition in the case of an external shock.

“The Government is still letting strong economic growth do a lot of the work in the return to surplus. But, policy decisions (ie. savings) will also marginally add to the budget surplus in the projection period,” ANZ said.

Westpac has said there is “no doubt that the budget will impose a contractionary influence on the economy”, but draws attention to the Government’s forecast for an 8% lift in the terms of trade, up from its previous forecasts last November.

“With a permanently higher terms of trade of 4% being worth an extra $6.3 billion, the risks (and the current windfall) from the terms of trade are clearly highlighted,” it says, amid concerns the budget is too reliant on a surge in company profits, particularly from the mining sector.

Westpac added that the Government’s savings are more than is usually achieved in budgets. “Fiscal policy will be responsible for a substantial tightening over the next two years. However the Government’s restraint on spending growth is significantly assisted by the high base established during the GFC,” it added.

On ABC Television’s Inside Business, Swan rejected suggestions that the Government’s revenue expectations are too optimistic.

“Growth in this year is down by one percentage point, but we’ve got growth forecast next year of 4%. What that really means is that next year we are expecting the economy to be growing strongly, and we do expect revenue to recover with that,” Swan said.

Swan has reiterated that 500,000 jobs are expected to be created in the next two years, pushing the unemployment rate down to 4.5% from 4.9%, and the Government’s promise to cut real spending growth to 1% above inflation will make it the first since the 1980s to have budget for such a discipline.

Critics says the Government’s forecast for a return to surplus in 2012-13 – the fastest-ever positive turnaround in the budget position of any major advanced economy – is overly reliant on a surge in company profits, especially miners, and therefore continued economic growth from China. Beyond concerns over China, there are criticisms that company profits will not increase by the 36% predicted, but rather 25%.

But the Government is trumpeting its $22 billion in savings, with a net return to the budget bottom line of $5.2 billion over forward estimates.

The Opposition has accused the Government of class war by ending indexation of welfare benefits to families on more than $150,000 – a decision Prime Minister Julia Gillard has said will be reversed in 2013-14.

In his budget reply last week, Abbott promises included a repeal of a carbon tax, an increase in the education tax rebate for all families to $500 a year for primary school and $1,000 a year for secondary school, working with the states to ensure that school councils can appoint principals, and delivering more funding to local board-run hospitals.

Abbott also flagged making work-for-the-dole mandatory for the long-term unemployed aged under 50, stopping dole payments for people under 30 in places where unskilled work is readily available, and a look at the disability pension.