Thursday, May 15, 2008

So... The Budget was boring

This from Joshua Gans at ABC Online:

Back to Boredom

by Joshua Gans (13th May, 2008)

When I was growing up, Budget Night was a dull affair. It was a mind-numbing statement of a raft of statistics, tax changes and expenditures. The best thing to look forward to was the headline balance in the budget accounts. How large would that deficit be was the question in the early 1980s? How large would the surplus be was the question for the rest of that decade. Other than that, there were a few new initiatives and it was hardly a ratings puller for the ABC.

To keep interest flowing, the Howard government would use its Budget Night for some new announcements. Usually these were a new round of changes to tax thresholds but occasionally they would throw in baby bonuses and child care rebates to create some talking points.

Tonight’s affair was back to the sleep inducing days of old. Put simply, there were no surprises. The Rudd government has done pretty much everything it promised to. The only new stuff were some spending cuts achieved in small little bits throughout the public service. The image of a widespread razor gang armed with small blades is hardly a recipe for excitement. The Australian Chamber Orchestra will be reeling but the vast majority of us aren’t going to notice.

Now there was one small thing to talk about and, in desperation, talk about it shall. About 20,000 babies born after the 1st January 2009 are not going to deliver the $5,000 baby bonus to their parents. The baby bonus will be means tested with households earning more than $150,000 missing out. And I suspect that the government will hardly lose a vote amongst those folks. When it comes down to it, it was with some embarrassment that those parents were extracting $100m per annum from the social pool.

What is more interesting is why the government chose the 1st January 2009 for the big cut-off date and not 1st July when the baby bonus is due to rise to $5,000. As Andrew Leigh and I have demonstrated based on past baby bonus hikes, that rise will cause some delay in births. One might think that cutting the bonus for high income households would have accelerated births into the current fiscal years for those. To be sure, that would seem to smooth the waters but from a medical perspective, giving parents an incentive to rush things would be a bad idea. That incentive will not be transferred until the last week of the year. However, then parents are going to have to convince doctors to come in for special deliveries on what is usually a low birth week. I would have preferred a graduated elimination of the bonus but if you are going to remove it, best to do so at that time. (And by the way, no point in rushing out this week to make that birth date: you’ll find yourself a couple of months too late).

While it won’t create much talk soon, the infrastructure expenditure plans will probably be the lasting economic reform from this budget. The move to a fund for capital works signals a clear role for the government in providing transportation, digital, health and educational foundations. This is a big break from the previous government and makes it look more like the Bill and Melinda Gates Foundation than our big corporations. I like that image.

John Maynard Keynes hoped for a future where economics would be a boring activity — he aspired for them the status of dentists. Wayne Swan has delivered a budget that lives up to that aspiration. My children decided to watch the speech with me. It put them straight to sleep even more quickly than a Dr Seuss book. And it should be, should be, should be like that.

Joshua Gans is an economics professor at Melbourne Business School. He blogs on these issues at economics.com.au.