Column in The Weekend Australian - Liberals Cry Wolf on Budget Crisis

Published in The Weekend Australian on 7.09.13

In May this year the Coalition declared a budget emergency, that spending and debt were spiralling out of control. Yet its response to this alleged crisis was deliberately withheld until Thursday afternoon, later still than the final Wednesday evening of the 2010 election campaign. The 2010 manoeuvre to avoid public scrutiny led to the debacle of an $11 billion costings error and the accounting firm the Coalition hired to audit the costings being fined for its professional association for misconduct.

Having warned repeatedly that the Coalition intended to deploy this same deceitful tactic in 2013, as senior shadow ministers continued through the year to obfuscate about when they would release their costings, this columnist took heart when the Opposition Leader Tony Abbott overrode his shadow treasurer Joe Hockey at the beginning of the campaign, assuring Australians the costings with bottom line impacts would be released “in good time.” This election, he told us, was all about trust, and he could be trusted to keep his word.

More than two million Australians had voted by the time the costings were released and Abbott made sure the blackout of election advertising was in place before announcing them.

What is now known at this late hour of the Coalition’s response to the self-declared budget crisis? An Abbott government would improve the budget bottom line by - wait for it - $1.5 billion a year. That’s 0.1 per cent of the nation’s gross domestic product, putting it in the category of a rounding error. Coalition shadow ministers have wanted the political benefit of creating the impression of a budget in crisis under Labor while avoiding the political cost of telling the Australian people well ahead of the election what they would do about it.

And so was conceived the idea of an audit commission to be conducted after the election. An insight into possible outcomes from such an audit can be gleaned from the Howard government’s audit commission after it won office in 1996. Despite pre-election promises that an incoming Coalition government would retain scheduled increases in superannuation for working people it axed them. And the Howard government slashed funding for vocational education, contributing to skill shortages that by 2006 had become so acute that they imposed severe capacity constraints and inflationary pressure on the economy – contributing to 10 successive interest rate rises.

A further insight is the Queensland government’s audit commission, which has led to the axing of 4,140 health worker positions.

In trying to explain away its refusal to comply with former treasurer Peter Costello’s charter of budget honesty, the Coalition claims it doesn’t trust Treasury numbers, rendering the Pre-election Economic and Fiscal Outlook useless. Hockey’s allegation against Treasury is that it hasn’t been able accurately to predict the future. Treasury officials aren’t clairvoyants any more than are the three former public servants whom the Coalition has hired to tick off on its costings. Nor have private sector economic forecasts been any more accurate than Treasury’s.

If the Coalition forms government it will not be relying on former public servants for official forecasts but on Treasury and the Department of Finance. Before 2009 Treasury’s practice was to forecast the economy for the first year of the

four-year budget period. In 2009 it began forecasting the first two years. The remaining two years are projections based on an assumption that the economy will return to trend growth of around 3 per cent per annum. If that working assumption is wrong then the fiscal outlook for the last two years of the budget period will be overly optimistic.

This is all very well known within the system. So if the Coalition forms government, get ready for the old cupboard-is-bare trick, as the Treasurer announces his shock that the fiscal outlook is worse than he thought and all bets are off about quarantining education, health and other sensitive areas from spending from cuts.

And the Treasurer will present to the Australian people that the cost to the budget of rescinding the mining tax is small, since it isn’t projected to collect much revenue. What he won’t say is that the longer-term impact on government revenue from abolishing the mining tax is large. The reason is that the big mining companies were granted the right to deduct the historical cost of establishing their major iron ore mines over 10 years. Once those massive deductions are exhausted the mining tax will generate large amounts of revenue. But the Australian people and the budget bottom line will never see the benefits of that revenue under a Coalition government because the mining tax will have been scrapped.

A Coalition government’s fiscal task would be much more manageable if its leader weren’t so philosophically committed to restoring welfare and other income support payments for high-income earners and adding a few more. The Coalition has declared a budget emergency about which it has promised to do nothing. And for this it expects to be taken on trust.