A quiet revolution is unfolding in Australia's economy, but few are aware of it.

On May 11, Treasurer Josh Frydenberg will rewrite many of the economic orthodoxies the Coalition and Labor have championed for almost four decades.

Before the economic reforms of Labor's Bob Hawke and Paul Keating, 1970s Australia - like much of the Western world - battled high unemployment and inflation with higher taxes and big spending.

But next Tuesday, after nearly 40 years of that mantra, the idea that small government alone can fix economic problems will be sorely tested.

In next week's Federal Budget, Frydenberg (if not quite performing a 180-degree turn) will at least point us toward a Keynesian world for the first time since Kevin Rudd's global financial crisis response - itself a temporary aberration rather than a new way.

In so doing, expect Frydenberg to throw billions at social services, including childcare rebates, aged care and the National Disability Insurance Scheme.

In short, Frydenberg will signal to conservatives and free marketeers that it's perfectly acceptable - indeed, wise - for governments to intervene to help all Australians, and not just the most vulnerable.

 

Treasurer Josh Frydenberg’s Budget will reinvent the modern conservative movement. Picture: Gary Ramage/NCA NewsWire
Treasurer Josh Frydenberg’s Budget will reinvent the modern conservative movement. Picture: Gary Ramage/NCA NewsWire

 

Of course, we've had big-spending Coalition Budgets before, but these were largely just pre-election sweeteners. John Howard's "middle-class" budget before the 2007 election remains a case in point.

The fact the Coalition quickly re-embraced Budget cuts - remember Tony Abbott's 2013 "Budget emergency" and Medicate co-payments? - meant austerity was always the Liberals' default position during crises.

This Budget looks markedly different. This time, a Liberal treasurer has categorically ruled out the A-word: "We won't be undertaking any sharp pivots towards austerity," Frydenberg told the Australian Chamber of Commerce and Industry.

And there won't be any attempt at "Budget repair" until the unemployment rate falls, preferably to something beginning with a "4".

In short, the Federal Coalition Government is now putting people, services and jobs before Budget surpluses.

To many, this sounds like a mere echo of Rudd's GFC package that turned a healthy surplus into a crook deficit on the heels of a then-record $52 billion stimulus package.

If we were considering the current Government's own $66 billion COVID-19 stimulus package alone, this might have been a fair comparison.

 

Prime minister Kevin Rudd (right) with treasurer Wayne Swan at the 2008 Budget
Prime minister Kevin Rudd (right) with treasurer Wayne Swan at the 2008 Budget

 

But this Budget will go much farther in rhetoric and long-term vision.

For one, it's telling that Frydenberg won't even countenance austerity, despite this Government nursing the biggest deficit - at over $150 billion - since World War II (including a soaring debt-to-GDP ratio) while approaching a trillion-dollar debt.

For another, Frydenberg's insistence on jobs before surpluses is a shout-out to Australian workers who continue to suffer record low wage growth.

With the idea that business tax cuts would "trickle down" to workers now largely debunked, it's becoming increasingly obvious that free labour markets don't always lead to prosperity.

Indeed, all signs now point to a Coalition that's been born again in the church of John Maynard Keynes.

If so, it's brilliant political as well as economic strategy. How so?

First, it cuts Labor - the party of social welfare - out of the narrative in the lead-up to the 2022 federal election.

Labor simply cannot critique a government on unemployment and spending cuts after next week.

Second, this is a very public job application for Josh Frydenberg, who is likely to become prime minister sometime in the next parliamentary term.

 

Opposition Leader Anthony Albanese (front) with shadow treasurer Jim Chalmers
Opposition Leader Anthony Albanese (front) with shadow treasurer Jim Chalmers

 

Given recent frisson in both major parties over leadership transitions, it's essential the Liberals enjoy a smooth leadership segue.

Last, the Coalition from this point will be regarded as the agent of action rather than mere reaction - a mantle that served Labor well between 1983 and 1996, and John Howard equally well between 1996 and 2007.

More critically, this will prove essential to the Liberals' long-term credibility.

Voters react tersely to conservative parties engaging in prolonged austerity, and a failure to act now will paint the Liberals as an uncaring puppet of big business.

The Fraser government's defeat after a wage (and not price) freeze, and the United Australia Party's defeat and dissolution after the grim 1930s, suggests no party is invincible.

Rudd wrote in his 2009 Monthly Essay that "from time to time in human history there occur events of a truly seismic significance, events that mark a turning point between one epoch and the next, when one orthodoxy is overthrown and another takes its place".

This is surely one of those times, and the Federal Government is right to reinvent Australian economic thinking.

Dr Paul Williams is a senior lecturer in the School of Humanities, Languages and Social Science at Griffith University

 

Originally published as Budget to change Libs forever - and is checkmate against Labor