107 days have already gone for the new Australian Government. It will be another 140+ before we see it’s first full budget. Nearly a quarter of their elected term will be gone! 18 months after that, they will be right back in electioneering mode. And, we all know what that likely means: no new taxes; new handouts for the punters; “vote for me” promises and policy settings aimed at the swinging middle Australian voters’ hip pockets.

What are we thinking, allowing vote hungry, short term thinking politicians to make long term economic policy settings? But, I’ll come back to this fundamental problem for free-market economies cum democracies during next year.

Meantime, to Joe Hockey’s challenge … (and as we can see from above, he doesn’t have time to waste!)

A politician’s lifeblood is popularity and votes. Without these they are nothing! John Howard delivered Australia a master-class in how to win votes. He set the gold standard for populist politics at the expense of good long term policy setting. Think Kyoto, 8 successive years of tax cuts, crippling of the fuel excise, billions in middle class welfare handouts. We needed to be made to feel “relaxed and comfortable” and vote Liberal!

Abbott and Hockey come from that political school. That’s why we got all the spending promises: the Gonski model for education funding; the national disability insurance scheme; paid parental leave; roads of the 21st century; and on and on. And the tax promises: no change to the GST; no new taxes; cuts to company tax; abolish the carbon tax; abolish the mining tax.

All this with some vague notion that the deficit would become a surplus, and debt would be reduced. It was all just so delusional …

But, with a clear eye on their own hip pockets, the voters were sucked in.

Now, Hockey is feeling the economic reality. But it runs completely against the grain of the politics. So, like the true politician, in the shadow of Christmas last week, Joe delivered the unsurprising news that the Federal budget is in a huge, growing hole. And of course, with unswerving predictably, he tried to lay all the blame at the feet of Labor.

He didn’t use these words, but the messages were clear enough: “the Government is no longer Father Christmas”, “you can’t any more have handouts the Government doesn’t have the money to pay for”, “money doesn’t grow on trees”, “the age of entitlement is over”.

Was this the beginning of a little honest rhetoric from the Federal Treasurer?

Why then did he try to hide it in the Christmas rush? Presumably he hoped the media and the public wouldn’t get too agitated, wouldn’t start distrusting or disliking him, but rather go quickly back to the cricket, parties and shopping?

Right there is the conflict between the politics and the economics. The big issue for 2014 is: which will win out?

Hockey is right, but his messaging needs to be front and centre of the political and economic debate. And Abbott needs to unequivocally sing from the same song sheet.

If the Government really had the interests of all Australians at heart, it would be saying: “Forget our promises. Everyone knows we promise you stuff to buy your vote.”

“Now … listen up: here’s the real deal. The game of that last 15 or so years is over. We need to make fundamental changes to the way we think. We need to live within our means and not high on the hog in debt.”

Will this Government have the courage to deliver that message and follow through with action? Sadly, I doubt it.

Rather, they will use grand words, continue to blame Labor (although a good deal of the blame also lies with Howard, who frequently trumped Costello’s long term economic view), and then squib on ditching the unaffordable expenditure programs and raising taxes.

The political “imperative” will trump the economics.

The economics says we need:

• The carbon tax to stay, and grow. Those who were disadvantaged were well compensated.
• A genuine mining tax that raises money. We can’t dig this stuff up twice!
• Extension of the GST and/or a higher rate.
• Higher effective taxes on people and companies. A really good clean up of “concessions” and avoidance is probably all that is needed.
• Heavily means tested welfare. It’s meant to be a safety net not another income source!
• Reduced defence spending (Why, really, do we need a submarine fleet?)
• Dramatic rationalization of the Federal/States contest. Particularly in health and education.
• And on the list could go …

But what on earth is the chance that Abbott’s politics will permit all that any time soon?

I suspect we’ll have to get much deeper in a hole, before the delusion will pass …

… or, just maybe … Joe Hockey can rise to the challenge, stare down the politics, and set Australia on a sustainable economic course for the future … I wonder …