A horror budget

Australians can expect a horror budget in May.

That’s because the new Rudd Labor government has a doubly difficult task before it.

It must reduce the high inflationary pressures, which now threaten the economy.

And it has to make room for the staged tax cuts that it promised before the election last November.

The first instalment of those tax cuts, which will ultimately cost $31 billion, is due to be paid from July 1, this year.

The government will probably get a little help from the present downturn in the US economy.

That should help reduce those inflationary pressures, by slowing the Australian economy, too.

The interest rate rises, that the Reserve Bank has already announced, and those it is likely to announce, in the months ahead, are starting to bite, too.

The government will also get some extra tax, from Australia’s iron ore and coal companies, which have just extracted big price rises from their customers.

The trouble with all this, though, is that the timing is far from predictable.

It is all too possible that those nasty inflationary pressures will cause real damage, that will be hard to reverse, before the economy slows.

So the government’s spending cuts will be deep. Especially as Mr Rudd is ruling out slashing middle class welfare. He has declared, for example, that the private health fund rebate will not be touched.

The government says there are two reasons why the tax cuts should be paid, as promised. Firstly, they will offset the pain working families are now experiencing, as a result of those rate rises.  And secondly,  they will counter inflation by encouraging people to re-enter the workforce.  But these are just pretexts.

What the government is actually concerned about here is its own survival. It knows that the public would never forgive it, if it didn’t keep its promise to cut taxes. The results of Paul Keating’s politically disastrous attempt to defer part of his “L.A.W. law” tax cuts, by paying the second tranche into superannuation accounts, is still well remembered in Canberra.

Besides, the government is also facing the grim prospect of increased spending in particular areas, such as hospitals.

There is room, of course, for savings, in this area, too. Building good hospitals is generally cheaper, in the long run, than building bad ones, that don’t work, as the Iemma government has done, in Bathurst.

In the end, though, those tax cuts will have to be paid for somehow.

And even the people in Canberra, who reliably vote Labor in Federal elections, will suffer.

Urgent roadworks, in the National capital, are being deferred, as part of the Federal government’s economy campaign. And, as a result, the bush capital will soon start to see some real traffic jams.

Don’t laugh. You will be next. No matter where you live in Australia.

You may have to wait for the budget, itself, in May, to find out how you will be hit. But don’t think you will escape the Treasurer’s axe. You won’t.