Battle over windfalls in ‘hold my beer’ election that consigns fiscal rectitude to history books

There was a time when the political class strived to balance budgets after lean years.

Seemingly long forgotten, as all sides embark on an election spending splurge, between 2010 and 2012 then Labor treasurer Wayne Swan fought a Sysephean battle to restore fiscal credibility.

Having run up big deficits that raised debt to cushion fallout on jobs and growth from the 2008 global financial crisis — keeping recession at bay — Swan was determined to race back to surplus.

Swan made a virtue of “getting the fiscal settings right” backed by the “discipline” of 1 per cent average real spending growth over five years.

“This will be the fastest return to surplus in over 40 years… we will be back in the black well ahead of the major advanced economies,” he said in a speech to the Brisbane North Chamber of Commerce in May 2011.

“Returning the budget to surplus is not easy, but it is worthwhile.”

At the time, budget revenue assumptions turned out to be optimistic. Losses carried over from the GFC and falling commodity prices killed corporate tax receipts.

By 2012, with an election due the following year, Swan forced his caucus colleagues to accept even more spending restraint.

The federal bureaucracy was cut by more than 4,000 workers, the Reserve Bank of Australia was tapped for a dividend to the Commonwealth, spending promises led by a new program called the NDIS were pushed beyond the four-year budget horizon, or “re-profiled” into out-years, particularly across the defence budget.

Economist Stephen Hamilton recalls working in Treasury under the Gillard government, “late into the night, scouring the budget for savings, looking behind the couch cushions and in bottom drawers just to squeak out another couple of billion dollars to get a forecasted surplus.”

Hamilton toiled in Treasury’s “hamster wheel”, the office that tracked all the key budget numbers.

“They were obsessed,” he says.

“Now, we have a government that has, with gay abandon, made decisions to turn next year’s $5 billion deficit into a $42 billion deficit.

“And we have an opposition that simply says: ‘hold my beer’.”

Swan’s fiscal zeal — which infuriated many of his colleagues who wanted to spend money on nice things for voters — was propelled and constrained by the political mood of the time.

Before commodity revenues became a constant near-certainty, covering budget cracks with easy revenue, Swan genuinely feared a backlash from voters concerned about debt and deficits.

Building a surplus, Swan felt, from the rubble of the GFC would kill an inevitable Coalition assault against Labor for mismanaging the budget.

Such political restraint is hard to find in 2025. And voters might be part of the problem.

Insiders on both sides of politics, as well as private interest groups, report that surveys show households are largely indifferent to the state of the federal budget.

Cost-of-living pain and worries about housing dominate their list of concerns.

That has pushed the major parties into a spending contest that economists say will keep inflation higher and undermine efforts to build resilience for the next crisis.

On Sunday alone, at competing campaign launches, Labor and the Coalition unveiled almost $24 billion in new spending.

Peter Dutton promised to re-animate the former Morrison government’s “one-off” low and middle income tax offset, putting up to $1,200 into workers’ accounts at a cost to the budget of $10 billion.

In addition, a future Coalition would enable first time home buyers to deduct interest payments from their taxable income, wiping another $1.25 billion

Not to be outdone, Labor promised $10 billion for 100,000 new homes exclusively for first home buyers. Some $2 billion will be grants, with $8 billion in loans.

Last week, the Coalition committed to spending $1 billion of borrowed money on northern Australian infrastructure projects, in addition to $32 billion in projects agreed to between Scott Morrison and Barnaby Joyce ahead of the 2022 election.

Neither side has detailed how the new promises will be funded, or where the offsetting savings or tax cuts will come from.

All voters can be sure of is that Labor’s budget last month outlined a decade of deficits.

Opposition Treasury spokesman Angus Taylor promised last week to return the budget to surplus within a decade, and tagged $100 billion in spending cuts.

But almost half of that would be from “off-budget” spending Labor has set aside for energy infrastructure and manufacturing.

Either way, with just under three weeks to polling day, expectations are there will be more spending promises.

Dutton said on Sunday that he will “soon announce a significant investment in defence”.

“In these uncertain times, that’s not an option,” he said. 

Which raises the question: What is optional? Where does the country draw the line?

Since at least the early 2000s, starting under John Howard, voters have been conditioned to expect concessions, bonuses and sweeteners.

For more than two decades the key driver of daily politics has been about dividing the spoils rather than a focus on future prosperity, says budget expert Chris Richardson.

“If you’re lucky and you’ve got gold, diamonds or oil, and money gets handed to your nation on a platter you start to mishandle it and the nation’s elites fight over the windfall rather than improve the country,” he says.

That good fortune, he adds, has ensured that Australia has low net debt, despite its choices.

“That does mean we have room to manoeuvre that’s not available to others, in the US, Japan, UK and much of Europe.”

“But… we haven’t had to be disciplined with our choices. I look at our budget. It looks out of condition. It’s fat and unprepared for a world of more difficult circumstances.”

A student of fiscal politics since the 1980s, Richardson says he has never felt so worried.

“Our prosperity and security are genuinely under threat in ways I’ve not seen in my life, yet both sides ask Nero to borrow a fiddle.”

Back in 2012, as Swan threw the kitchen sink at the fight to secure a surplus, Labor scrapped an instant deduction for taxpayers, saving the budget $2.1 billion over four years.

That’s almost the same $1,000 sweetener Labor re-introduced at its campaign launch on Sunday in Perth, costing the budget $2.4 billion over the forward estimates.

In the 2012 budget speech, Swan explained why the pain was needed.

A return to surplus is “important for sustaining confidence in the strength of Australia’s public finances” with savings that “support Australia’s capacity to respond to unanticipated events in uncertain global economic times”, he said.

Swan was forced eventually to admit defeat. His surplus never eventuated. The next time voters saw one was in 2022/23, as commodity prices exploded.

“Fiscal rectitude is dead,” says Hamilton. “For now — eventually, there will be a reckoning.”