As various opinion pieces have pointed out this week, the Liberals are playing high-stakes politics with their budget strategy.
They are going against the conventional wisdom that spending cuts are necessary to avoid future interest rate increases, and instead saying that there is a danger the economy could slow too much. Intellectually, I think this is a defensible position. The budget is a very clunky mechanism for macroeconomic fine-tuning, with its measures unlikely to have any significant effects for months and hard to change if they prove to be misjudgments.
Politically, however, the argument is too complex and risks further undermining the historic issue strengths of the Liberals.
The recently released results from the 2007 Australian Election Survey (a mail-out survey, which closed in March 2008) shows that while more respondents prefer the Liberals than Labor on interest rates, the margin has narrowed significantly since 2004. The 29 percentage point lead the Liberals had after the 2004 election had shrunk to 6 percentage points after the 2007 election. By not being seen to be strong on the interest rate question this is put further at risk.
The Liberals are also complicating their low tax issue perception with their comments on spending. In the AES, they are still ahead, but only by 2 percentage points, the worst result since 1993. At a high level of abstraction, Turnbull’s position is perfectly sensible:
irrespective of the level of inflation or the state of the business cycle, government spending programs should be frequently examined to see that they will not be wasteful and that they will achieve their objectives.
But Nelson’s ‘every mother loves her baby’ defence of a non-means tested baby bonus, plus the confusion over spending cuts for cyclical reasons, are blurring this point. Turnbull’s no doubt right that few rich people get the baby bonus, and that therefore means testing will at best save trivial sums, but welfare for the wealthy is a symbolic trap set by Labor into which they have fallen.
There is a chance that Nelson and Turnbull will be proven right; that as before the last recession Labor will hit the brakes too hard, cause unemployment to increase significantly, and show that the electorate’s confidence in their economic management skills was misplaced. Nelson and Turnbull will be able to say ‘I told you so’, that they had the answers in early 2008, and will have the answers again after the 2010 election.
But the Liberals are also gambling with the party’s few remaining issue polling leads. Apart from defence, Labor is ahead on all issues except economic issues. And if there is a recession, Labor will be in deep political trouble anyway, regardless of what the Liberal leadership says now. Whatever the intellectual merit of the Coalition’s arguments, a simpler message more in line with the conventional wisdom is likely to be better political strategy.