WEB EXCLUSIVE: As Good As It Gets

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tralia's Treasurer Peter Costello has had few better moments in his political career. Yet tonight he did not seem likely to either punch the air or appear too pleased with himself. Months of huddling with officials in preparing his 11th Budget had given Costello a pallid face. He looked in need of a decent night's sleep. His head was full of new tax scales, growth projections and spending measures. But ignore the facial puffiness and creases, for his lively eyes told the real story. Here was a happy fellow. The tax-cut man cometh.

The federal Government is swimming in revenue. Australia's export prices are at a 30-year high, a record number of people are employed, incomes are rising and company profits are booming. Despite economic squalls in the neighborhood, and beyond, Costello could boast in his Budget speech that Australia was still expanding: "In fact, growing in the longest continuous stretch our nation has ever experienced." Soon Australia would be a $A1 trillion economy.

Costello had announced immense tax cuts in the past, such as those worth $A12 billion a year accompanying the introduction of the Goods and Services Tax in July 2000. And there had been modest tax cuts and increased family payments aimed at low earners in recent years. Now it's the turn of the top end—and those who one day aspire to be like them. At the start of the decade, the 47 cent tax rate kicked in at an annual income over $A50,000; from this July, the rate will be 45 cents and the income threshold will be above $A150,000 (with only 1 in 50 taxpayers to be in the top bracket). The overall tax mechanics are such that 80% of workers will pay no more than a top marginal rate of 30 cents for every dollar earned.

The Prime Minister and Treasurer have looked after people like themselves in this Budget—family men in the professions and the self-employed. As well, they've been generous to all the groups they need to hold in those seats they claim by the narrowest of margins. The major reforms to superannuation will make Baby Boomers more relaxed about retirement; it may keep some of them, and the next generation, in work a few years longer to lessen the economic fallout of an ageing population.

Even though there's likely to be another Budget before an election (due in late 2007), the Howard government has decided to cut taxes early and hope that there's even more money to entice voters next time (probably the so-called Battlers, who don't pay any tax when you apply a broad definition). The thinking is that money in the pockets of mortgage belt-families is needed right now. Petrol prices are high (by the standards to which Australians see as their birth right) and are not expected to ease for some time. The Reserve Bank's move on interest rates last week has made suburban families in the south-eastern States uneasy, particularly as the market value of their McMansions has been stagnant (or worse).

Financial markets are anticipating another rise in official interest rates this year. Having campaigned in 2004 on keeping interest rates low, Howard is acutely sensitive to a revolt from voters in urban-fringe electorates. An economic slowdown at home or overseas could also cut the ground from under the government. But the local economy has been so resilient for so long—like two burly and laconic Tasmanian miners—that few are expecting a messy end to the good times.

Labor leader Kim Beazley will have a difficult job convincing Middle Australia that the government has abandoned them and that his party of the workers is also the champion of the upward mobility. Perhaps he'll flick the switch to envy, like his predecessor Mark Latham. At the very least, Beazley must be hoping the new workplace regime makes life less comfortable for working families by the time the election is called.

But the nagging worry surrounding Howard and Costello's fiscal pitch is not that the good times will one day end (they will). It's an unease that not enough is being done right now to improve the productivity and, hence, the living standards of future generations. The Commonwealth is debt-free; Howard and Costello have cut government debt with the relish one only sees in workaholic couples who are under the spell of their bank manager's mortgage repayment simulator. So what is a 10-year-old, extremely fortunate administration doing to underwrite a splendid future?

In Australia, it's a great time to be a consumer, a high earner, a budding retiree and a Treasurer for that matter. "This is a Budget which will build opportunity for the future," Costello concluded before commending the Bill to the House. There are indeed measures in this Budget aimed at fixing the nation's creaky roads, under-utilized rail, dying rivers and slow-go ports. There's fresh money for medical research, war planes and national security.

But when you strip away the politics, the largesse and the stagey rhetoric, the Howard-Costello paradigm does not resemble a long-term program to make today's students tomorrow's high-productivity workers. It's the skills, stupid! The 2006-07 Budget does not sing a melody that Australia is at the frontier of innovation, or even that it is on the road to becoming a Big Country in the world marketplace. Same old, same old song. Whatever, never mind. Just like the government, today we're all living large.