Locked Up

The Federal Budget is ‘The Big Day Out’ for the political and financial media in Australia. Busloads of hacks (only the lucky ones go by plane these days) make the long journey to late autumn Canberra to join their full-time press gallery brethren in what is a media and political ritual – a six-hour lock-up, a frenzy of writing and then off to The Holy Grail (these days the Kennedy Room, I’m told) to get stonkered till 3am.

It’s a ritual because the moves are rehearsed and wholly predictable. And it’s an empty ritual because the budget these days is a political event, not an economic one. The AFR journos will run a comb over Treasury forecasts on GDP and inflation (which usually differ only slight from the RBA’s own forecasts) and hope that there’s some announcement on depreciation that they can splash for all their accountant readers. The Daily Tele and Herald Sun crowd will be flung some morsel about tax support for low income earners to justify the expense of putting them up in a flash hotel for the night. And the press gallery political heavyweights will supply the “over-arching analysis” – usually something about the government being caught in a pincer movement between the need to cement its fiscal credentials while winning back the heartland support.

The photographers will be tearing their hair out trying to come with visual images other than shots taken up the Treasurer’s nose, as he stands in a little prayer circle with a bunch of journos inside the lock-up – surveying the sacred text of Budget statement number 2 while chewing on their pencils. The AFR, once again, will knock-up some waxwork figurines – this year most likely showing Swan as the Grim Reaper and Gillard holding a whip and an alarm clock. His Holiness Paul Kelly at The Australian will no doubt fulminate and ruminate and cogitate and all the other “….ates” about the budget marking a “profound change” in Australian politics as the party of the centre left takes the axe to the welfare bludgers.

The chosen ones will get a drop or two ahead of budget day to keep them onside and spread the news out over two or three days than just the one. And on the day itself, going into the lock-up, hundreds of journos will queue to surrender their mobile phones and sign affidavits to swear they will not release the thrilling information before 7.30pm when the treasurer gets to his feet.

This entire security charade – which goes back to the 80s when Australia opened to global capital markets under Keating – is built upon the anachronistic assumption that the markets care deeply about what the budget contains. But the fact is the Australian public sector’s call on capital markets is so insignificant in the scheme of things that budgets come and go these days without causing so much as a blip in trading of Australian government bonds or the Australian dollar.

To put our budget in perspective, Australian public sector debt represents about 22 per cent of GDP, compared with Japan’s 225 per cent (10 times as much in proportional terms),  the UK’s 76 per cent and the USA’s 59 per cent.  Out of 132 countries ranked by the CIA in terms of cumulative public debt (with number 1 being the most indebted), Australia ranks 108th. Our actual deficit (the difference between revenue and spending over one year) is about $50 billion or 4 per cent of GDP. In the US, the Budget Office forecasts a deficit of $US1.4 TRILLION this fiscal year. So the popular notion that Australia is sinking in a rising tide of debt and deficits is just nonsense.

The irony is that global asset managers – starved of safe assets to invest in – are actually hanging out for ‘AAA’-rated borrowers like Australia to issue more debt. The fact is the growing indebtedness of countries like the US and Japan (and much of southern Europe) is making Australia even more attractive to foreign borrowers, who can invest money here in a safe environment for yields of 5-7 per cent – the highest in the industrialised world. It’s a phenomenon The Economist magazine noted recently.

The government, of course, could go back on its (quite frankly stupid) promise to return the budget to surplus within three years as some business commentators are urging it to do. Funnily enough, none other than those guardians of fiscal rectitude Moody’s, in a recent statement affirming Australia’s top-ranked position, advised the Gillard government essentially not to sweat it over reaching the self-imposed budget target.

“Whether it reaches a balanced position in 2012-13 — as targeted by the government — or somewhat later is not important as long as the improving trend is in place. Because of its low debt levels, the government has some leeway in this regard.”

But, of course, this is not the point. Having tied itself to the mast, the government has issued a challenge to the  press gallery (forever looking for the “gotcha” moment) to find it going back on its word. So any suggestion from Swan or Wong that there is nothing sacrosanct about reaching budget balance in a particular year would unleash howls of horror and the tearing of garments in the media, who have swallowed whole the Opposition line that the government has somehow wrecked Australia’s public finances, throwing money onto a bonfire of pink batts and school halls. That’s the narrative. And facts can’t be allowed to stand in the way of it.

So the emerging story around this budget is whether the government is good for its word (watch out for Budget Backflip) and will take the axe to its spending. If Swan can do that while putting the boot into single mums, the disabled and the long-term unemployed (the favoured targets of the drooling fascists of talkback radio), he will have achieved the quinella. Of course, no mention will be made of the $60 billion in revenue foregone by making the mining tax acceptable to the multi-national resource giants. The trick is to be seen to being tough – as long as he’s ‘tough’ with those who can’t fight back.

And the media will go on implicitly believing in the perverse morality of the budget charade; that somehow subsidising bankers with funding and deposit guarantees and charging cheap rents to multi-national mining companies is about advancing capitalism; while paying decent benefits to the least privileged in our community is something we can’t afford. What a circus.