Mirrors and smoke at Abbott’s budget party

At Canberra Airport on the way home on Wednesday morning, I bumped into John Kerin, who I think was the only actual economist ever to be appointed Treasurer, for which reason, obviously, he couldn’t last – hampered, as he was, by expertise (he was Treasurer for six months, between June and December 1991, and brought down one budget).
 
Walking to the gate, we reminisced about that 1991 budget. It was the only one ever to have not involved a lockup. As John said on Wednesday: “I thought the lockup was stupid, couldn’t understand it, so I just put the documents out at 3 o’clock.”
 
I remember it well: no schlepping to Canberra, no breathing the fetid air of hundreds of journalists, no boozy party afterwards. Appalling decision.
 
The lockup was quickly reinstated because, as then Prime Minister Bob Hawke and his successor Paul Keating realised to their horror, the journalists were able to ring people during the afternoon who knew what they were talking about, to help them navigate the mysteries of the budget papers. In other words, they weren’t a captive audience for spin.
 
Twenty-two years later, we’re still being locked up with the world’s most opaque and complicated financial accounts and Treasury officials and government ministers as our only sources of help.
 
The pretext: it’s market sensitive. Yeah right. It’s about as market sensitive as a kissed baby.
 
This year’s spin was that the $43 billion of savings in the budget were a trap, or perhaps a wedgie, for the Opposition, because they would have to either accept them, or come up with their own cuts.
 
Well, if that was a trap, it was the sort you can see a mile off and easily step around.
 
Tony Abbott did it last night with a peculiar triple sideways shuffle: “…the Coalition may decide not to oppose any of them; doesn’t commit to reverse any of them; and reserves the option to implement all of them…” Three ways of saying the same thing, but politicians always say things in threes.
 
Anyway most of the so-called “saves” are really tax increases: the $43 billion total (over four years, back-ended) includes the increase in the Medicare levy, corporate tax crackdown and increase in tobacco taxation, plus removing unnecessary carbon tax compensation and $10 billion of “other”, whatever that might be.
 
Nevertheless this bag of mirrors and smoke was the centrepiece of the 2013 Commonwealth Budget and of last night’s budget reply, although at least Tony Abbott wrapped it in a nice speech. By the time he croaked: “We pledge ourselves to your service”, there wasn’t a dry eye left on his side of the House.
 
As for the substance of the Budget Reply speech – there was some of that too. The Coalition will keep the NDIS but will ditch the Gonski school reforms, and it will repeal the carbon tax (which we knew already, oh how we knew), but keep the tax cuts that go with it (which we didn’t know) – funding that by delaying the increase in compulsory super by two years, dropping the low income super contribution, reducing the public service by 12,000 and discontinuing the supplementary allowance for people on benefits.
 
There will be white papers on tax and Federation, parliamentary days dedicated to repealing laws, not passing them, and a cut to red tape costs of “at least” $1 billion a year.
 
That’s about it. The big, unstated hole in Abbott’s reply was the cost of the Coalition’s “direct action” climate change plan. He gave it one line in the speech: “We will reduce emissions with targeted incentives, not clobbering business with the world’s biggest carbon tax”.
 
Beneath that tip lies the sort of iceberg that sank the Titanic. The Coalition is going to ditch a market-based scheme that collects money in favour of a centrally planned one that costs money. If the NDIS and education funding are Labor’s smoke and mirrors generators, this will be the Coalition’s (in other words, don’t expect to learn the truth, either about what it costs, or how it’s to be funded).
 
On the whole, it was a week of unofficial campaign launches rather than Budget and Reply, which is only to be expected four months from an election. At this point, both government and Opposition can only commit to what they will do if elected.
 
The most interesting contribution to the week was made yesterday by Don Argus, in a “closed door” speech that has been reported by The Australian’s Annabel Hepworth.
 
Argus has analysed the budget with some help from “a willing young economist eager to make it in the corporate world”.
 
He has produced Commonwealth government cash flow and P&L statements from 2007-08 to 2012-13, which, he says, “was not easy”.
 
The cash statement shows that total revenue, excluding GST, increased at 3.6 per cent compound annual growth rate while cash costs increased at 7 per cent a year. Payments for employees grew 6.2 per cent per annum, grants and subsidies, 6.5 per cent, payments for goods and services, 6.7 per cent, personal benefit payments, 6.4 per cent, interest 26 per cent.
 
Each line item of costs increased more than revenue. For each of the last five years, cash flow was negative.
 
Don Argus reaches two main conclusions:
 
1. “Expenditure is growing at an unsustainably strong pace”.

2. “I am firmly of the view that we need to foster transparency and accountability in Australia’s public finances. I believe we need tighter standards governing how budget material is constructed and published, akin to the accounting standards that govern company financial statements.”

The first is a repeat of what Tony Abbott is saying, and flags Abbott’s big challenge, if elected – halving the growth rate of costs. It’s something Don Argus has seen many times in the corporate world; it’s happening right now at his old company, BHP Billiton, for example.
 
As for the second point, having sat through about 30 budget lockups and waded through that number of budget papers, I couldn’t agree more.
 
As John Kerin discovered to his cost, the government’s accounts are designed to hide, not reveal.

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