On Budget night last month, Treasurer, Wayne Swan, surprised many Australians when he delivered a pretty sensible plan for taxing and spending ahead of what is predicted to be a tight federal election. Buried in all this fiscal conservatism, however, is a political plan to skewer the coalition, but more on that shortly.

The 2010 Budget’s main features are as follows:

— the imposition of a Resources Super Profits Tax (RSPT) that will raise between $9bn and $12bn per annum, and which the doomsayers forecast will drive down investment in our most profitable industry. In reality, this tax will most likely be watered down in a manner pleasing to the big miners, although if this doesn’t happen look out for genuine job cuts in the sector;

— yet another tax increase on smokers. They’ve always been an easy target. Time to quit;

— assuming the above two taxes succeed, the budget should return to surplus by 2013, ie in just three years. This will be a remarkable achievement given the immense weight of government debt with which so many other countries are struggling;

— extra spending on health to both train and employ nurses to work in General Practitioners’ clinics;

— simplified personal tax returns that will see hitherto unprovable work deductions replaced with a $500 ‘standard’ deduction rising to $1000 in two years’ time; and

— for pensioners and others who live off interest from savings, the first $1000 per annum of such interest will be taxed at a concessional rate.
Wayne Swan is to be commended for his spending restraint and commitment to budgetary surplus during a period when governments traditionally like to loosen the purse strings in order to garner votes. Sure, the big mining states of Western Australia and Queensland will remain unhappy with Labor due to the RSPT, but this dissent will most likely be offset by satisfaction in both Victoria and NSW that then government’s finances will soon be back on an even keel.

And herein lies the political problem Mr Swan has created for the Coalition opposition. Just days after the release of the Henry Tax Review, both Tony Abbott and Joe Hockey announced that if returned to power they would eliminate the RSPT and thereby reduce substantially the future revenue streams accruing to the government.

Such a reduction would have the knock-on effect of delaying the budget’s return to surplus. In this financially straightened era, when public saving is seen as a greater virtue than public spending, the Coalition would then risk being viewed as inferior economic managers when traditionally this quality has been a Liberal strength.

So with his eminently sensible budget’s planned early return to surplus, Wayne Swan has made it politically difficult for Abbott and Hockey to abolish the RSPT. I suppose we should all be thankful that the major parties are no longer trying to outspend each other as otherwise some more tax increases might be needed.