Cushions don't come cheap

CANBERRA - Prime Minister Kevin Rudd has been preparing Australians for grief ahead of his Government's second Budget tomorrow night.

An economy that Treasurer Wayne Swan said yesterday had been "raining gold bars" before the global crisis struck has turned to political ashes as Labor tries to chart a course between promises and a cold reality that will keep the Budget in the red for the next seven years.

"There will be many howls of protest about the things that we are doing [in the Budget]," Rudd said. "I accept that, I take responsibility for it, but we've got to cushion the impact of this recession today and restore the Budget to balance over time."

But with opinion polls showing that Australians are starting to doubt Rudd's handling of the crisis, bad news and policy changes will be leavened by some expensive compensations.

Among them will be Government-funded parental leave; higher age pensions; massive spending on rail, roads and hospitals; and a tightening of health and other measures for high-income earners. Some of these will not come into force in the coming financial year, softening the budgetary impact without losing political mileage, and allowing the Government to prepare for what the Reserve Bank believes could be a tentative recovery by the end of the year.

There will be pain, with spending by federal departments pared to the bone, but Rudd will be positioning the Government for a more voter-friendly Budget ahead of next year's election.

Even with tax revenue down by a forecast A$200 billion ($255 billion) and an expected deficit of more than A$60 billion ($76 billion), Rudd needs to get the politics right.

Recent opinion polls have shown an incipient weakening of support, an expectation that promises will be honoured, and that any further economic kick-starts will focus on job-creating projects of national importance rather than one-off handouts similar to the A$900 ($1146) handed to taxpayers under Rudd's earlier economic stimulus plan.

Yesterday the Sunday Telegraph reported polling in key Labor marginal seats, warning that 36 per cent of party supporters could change their votes if promises were broken.

The poll focused on Labor's election promise not to change the private health insurance rebate introduced by the former Conservative Government in a bid to ease pressure on the Medicare public health care system.

Many commentators now believe that the rebate, and other Medicare provisions, will be tightened for higher income earners in tomorrow's budget, and Swan conceded that under the "unprecedented" pressures of the global crisis some policies would be changed.

Swan argues that subsidies to the wealthy must be reduced to pay for increases in support for families in the nation's struggling suburbs.

The need was reinforced yesterday by a new study by the Wesley Mission, which found that almost half of Sydney's households are not saving and one in eight are on the verge of insolvency.

The politics are already troubled.

Swan confirmed yesterday that the budget would finally give Australians paid parental leave, equivalent to the average weekly wage of about A$544 ($692) a week for 18 weeks, starting in January 2011.

But while unions and Sex Discrimination Commissioner Elizabeth Broderick applauded the news, the Government was also warned of an election backlash from solo parents, who are not expected to win from the budget.

The Wesley study reported that single parents were bearing the brunt of financial stress, but Swan said that benefits for single mothers already were twice those of single pensioners, with other substantial assistance provided in last year's budget and the economic stimulus package.

Age pensioners will gain from an expected A$30 ($38) top-up for single benefits that the Government earlier conceded were inadequate, condemning many to poverty.

The budget is also expected to announce vast job-creating infrastructure schemes.