It's infuriating to watch people who are insulated by huge salaries and unimaginable pensions for life stuff up the economy and sap confidence.   Most of us have to work in jobs that are financed by money that has to be earned - not collected.   It'd be nice to have a bit of competence back at the helm and some encouragement for investment.

The AFR's economics editors Alan Mitchell puts the responsibility for our budgetary dramas - and the blame for the consequences - squarely at Julia Gillard's feet.   And the same old character traits that led to her dreadful decisions in the past have come back to the fore again now - writ large.   If it's bad for the bosses then it must be good for union leaders, and no one loves to please a union leader like our "willing captive", Julia Gillard.

Gillard, not Treasury, led government into deficit

Alan Mitchell, Economics Editor with the Australian Financial Review

Julia Gillard would like us to blame the world economy, the Australian dollar and the Treasury’s revenue forecasts for her government’s fiscal problems.

But the truth is that those problems are fundamentally of her own making.

It was her government’s decisions that left the budget still in deficit at the peak of the biggest commodity price and mining investment boom in our history.

It was her government’s fiscal planning that, at best, would have produced a run of small budget surpluses out to 2015-6. It was her choice to commit to spend almost every cent the government could lay its hands on, and to brush aside warnings of the need for serious reform of major government programs such as Medicare.

And that is why the government’s fiscal strategy has failed.

That failure is not just that the budget won’t be in surplus in 2012-13, as she promised. It is that the government’s fiscal strategy could not promise a return of the budget to reasonable surpluses in the foreseeable future. It will take some unpopular election-year spending or tax changes just to create a halfway respectable set of budget forward estimates to take to the election. According to Gillard, these changes may have to include measures previously ruled out: more broken promises, in other words.  

Gillard’s longed-for post-budget boost in the polls seems further out of reach than ever. Moreover, Peter Costello’s taunt, that the budget would never be in surplus under Labor, has been demonstrated in a way that he could not have imagined.

Under Gillard, life has imitated Liberal hyperbole.

Mitchell ponders the minority government and other potential causes for Gillard's bizarre decisions - but comes back to her longstanding wish to please union bosses.

 .....a less charitable interpretation of events is that she was a willing captive of the union bosses that put her into the prime ministership.

The needed reform of government spending did not occur because she was unwilling to cross the public sector unions. Well, her government will pay a heavy price.

And still the spending announcements keep coming, along with the unrestricted flow of illegal and uncontrolled boat arrivals bearing well-informed welfare seekers.

And what is Gillard's response?   When in doubt tax, tax, tax. She seems to have bound herself to creating her "legacy" of achievement in office regardless of the costs - well she should be in doubt, she'll leave a thumping legacy all right - we'll be remembering it and paying for it for years.  Here's Philip Coorey in the AFR reporting on Gillard's speech yesterday.

Prime Minister Julia Gillard raised the prospect of a Medicare-style levy to fund her proposed National Disability Insurance Scheme as she warned that business, families and institutions will be hit at the May 14 budget to help pay for the scheme and the government’s school funding reforms.

In a speech which sparked widespread speculation and alarm, Ms Gillard said the worse-than-expected tax revenue situation meant areas of policy previously quarantined from the budget axe were now under consideration and she faced “decisions both urgent and grave”.

“I have expressly determined we need to have every reasonable option on the table to meet the needs of the times, even options previously taken off the table.”

Ms Gillard alluded to spending cuts and a tax rise – potentially an increased Medicare levy rather than a separate impost – when she said that because of “far more significant reductions in tax money than was expected, we are going through the process now of making decisions to spend less in some areas than we had hoped [and] to raise more in revenue in some areas than we had planned’’.

The Australian Financial Review understands the government expects to deliver a budget deficit this financial year of between $16 billion and $17 billion. After Ms Gillard spoke, speculation raged about other areas of previously untouched policy.

 And the AFR dedicates its editorial to the plainly obvious.   Gillard and Swan are spending way too much and it has to stop.

Now, Ms Gillard wants to allow deficits to continue for another four years or more because of a “temporary loss of income’’ and because she is determined to push ahead with Labor’s big-ticket spending promises on schooling and disability services.

Rather than not enough revenue, however, the problem is too much spending. Ms Gillard herself notes in passing that the weakness in budget revenue is in part “a return to normality – returning to long-term averages”. That is, the deficit is ­structural, not cyclical. It will not reverse by itself. It will need proactive extra cutting to eliminate the deficit.

Having belatedly acknowledged its budget black hole, the government should cut back the momentum of unsustainable spending. This requires either a one-off budget consolidation worth 1 per cent of GDP or holding spending below economic growth for some years. At the least, it requires a fair dinkum review of the role and scope of government spending.

Mr Swan damns any serious proposal to fill his own budget hole as akin to Europe’s “mindless austerity”. In fact, serious attempts to get the budget to black are needed precisely to avoid such a situation. Acting now, when the resource boom’s investment phase is yet to end, would reduce the risk that Australia repeats the mistakes of Europe’s over-generous welfare states before 2007. Most European economies have no choice but to cut savagely: financial markets will not lend them any more money unless they do. Australia weathered the global financial crisis because Mr Swan ­inherited a Chinese-fuelled budget buffer. As the end of our resource development boom appears, we risk facing our next shock with a bare budget cupboard.