The long-term politics of budget deficits

As a childless person on an above-average income – ie, the principal victim class of the tax-welfare system – I am pleased with the Coalition’s stance on massive budget deficits. I’ll be paying for it in the long run (and consistent with the permanent income hypothesis, I am increasing my savings to maintain stable long-term living standards).

But personal interests aside, I am interested in the long-term politics of this. The most detailed polling on this to date (pdf), though based on an online panel, finds majority public support for the government: 51% supporting Rudd’s approach, 33% Turnbull’s, and 16% undecided.

However, the latest package of handouts hasn’t changed confidence in Australia’s capacity to withstand the GFC, which has been hovering around 60% since October last year. Nor has it changed approval of the government’s performance since November last year. (The Opposition’s disapproval has substantively increased, from 35% to 44%).

The Pollytics blog is convinced that this is a disaster for the Coalition. Maybe. But less that twelve months ago the public was also buying the then media-macroeconomic wisdom that we needed a contractionary fiscal policy, of which the Coalition was sensibly (even more so in retrospect) sceptical.

The medium term politics depend on how Australia’s performance in the GFC is judged, and what effect is attributed to the handouts. The longer-term politics depend on attitudes to public debt and tax. If my theories are right, the underlying tax and spend public opinion dynamic should be turning back towards lower taxes. The Coalition’s current stance, along with their historic advantages as the more-favoured party on tax, could help them take advantage of any swing back towards preferring lower tax.