6 Aug 2013

Abbott Must Come Clean On The Budget Emergency

By Ben Eltham

The Coalition is making bold statements about economic management – but without costed policies, voters can't judge whether the bluster has any basis, writes Ben Eltham

It must be nice to live in the economic fantasy-land inhabited by the Coalition.

For something like six years now, the Coalition’s economic team, led by Joe Hockey, has attacked Labor’s economic management. When the Government recorded deficits, he attacked Labor’s spendthrift ways.

When weaker-than-expected economic growth caused a string of downgrades to the Treasury forecasts, he attacked the Treasury and the validity of its estimates.

When the Government made policy announcements – as governments do – on things like the NBN and the Clean Energy Finance Corporation, he attacked the people Labor had hired to run those agencies, warning them their agency would be abolished should the Coalition take office.

When it comes to economic management, the view of key Coalition figures is that Labor can’t be trusted to deliver a balanced budget. Many voters agree. Whether a budget surplus is in fact the best measure of economic management is something well worth debating, of course. But if an ordinary voter were to take the Coalition at its word, they would conclude that the fiscal balance is the most important economic metric. In his budget reply speech earlier this year, let us recall, Tony Abbott warned Australians that we face a “budget emergency.”

Under Tony Abbott and Joe Hockey, the Coalition has repeatedly claimed that it can deliver a budget surplus.

Wise heads in the economics community know better. What really determines the state of Australia’s budget bottom line is the state of the broader economy. In boom times, fat company profits deliver health tax revenues, and there are plenty of people in full-time work to pay income tax. In a weak economy, company taxes are often negative, allowing corporations to write forward big tax offsets for coming years. Unemployment rises, taking taxpayers out of the workforce and costing the budget in social security spending.

With commendable chutzpah, the Coalition has constantly deprecated the effect of the business cycle on the budget balance. Their view has generally been that the budget should be in surplus no matter the economic conditions. This view coincides with the more general conservative philosophy that the government should in general be smaller. Taken together, it all that means the Coalition is committed to many billions of dollars in government spending cuts.

All of this makes the Coalition’s policy costings an important election issue. Without a meaningful set of numbers, voters are unable to judge whether the Coalition’s very bold statements about economic management are valid.

Just how big the slash and burn exercise will be is impossible to determine, because the Coalition won’t tell us. When it comes to the true state of the budget under an Abbott government, we simply don’t have the figures.

In the normal course of affairs, this would not be remarkable. Oppositions are traditionally unwilling to surrender too much information about their policies, lest canny governments pounce on unnoticed details and make merry with the implications. The classic example was back in 1992, when John Hewson released his massive and detailed Fightback! policy a full year before the election. Paul Keating forensically dissected it in a process Tony Abbott witnessed first hand as Hewson’s staffer. Understandably, Abbott appears to have taken the lesson to heart.

But with 7 September rapidly approaching, the Coalition is also facing growing pressure to show its hand. The pressure is coming not just from the media, but also from voters and interest groups beginning to take careful note of the two major parties’ policy positions. For its part, the Government has been circulating its own crib sheet, with Penny Wong claiming the Coalition’s uncosted promises total $70 billion. That’s probably an overstatement, but it highlights just how little detail we currently have from the Coalition itself. And the extra scrutiny is again making many nervous about the economic credentials of the alternative prime minister, who continues to make serious gaffes and errors of fact.

The latest occurred just yesterday, when Abbott tried the line that an interest rate cut by the Reserve Bank “won't be some kind of win for the Government.” It was a statement that singularly confused the fortunes of the Government, to which he is understandably opposed, with the fortunes of the economy, which most of us would like to see healthy. Abbott’s remarks were doubly mystifying, because with inflation low and the economy slowing, an interest rate cut would clearly be beneficial for economic activity. The strange instance of a politician effectively arguing against an interest rate cut again shows that the Coalition struggles to separate partisan politics from sound economic policy.

The same could be said for the Coalition’s constant sniping at the public servants in Treasury. As Chris Bowen observed last week, if the Coalition win office, they’ll have to work with the Treasury to prepare a budget and achieve their cherished surplus.

The Coalition’s disdain for the Treasury bean-counters is all the more noteworthy because the Coalition has repeatedly struggled with basic numeracy. In 2010, when Hockey and Andrew Robb had the chance to cost the Coalition’s election policies with the federal Treasury, they waited until two days before the election to submit their costings. Perhaps this was because, as Hockey and Robb claimed at the time, that they questioned the independence of the Treasury bureaucracy. Or perhaps it was because the Coalition’s costings were a mess. When the Treasury finally went through the numbers, an $11 billion error in the accounting was discovered.

Instead of submitting their figures to Treasury, Hockey and Robb engaged an auditing firm, HWK Horwath, to go over their costings. With typical bluster, Hockey told Australian voters that the figures were legitimate and had been checked by professionals. “If the fifth-biggest accounting firm in Australia signs off on our numbers it is a brave person to start saying there are accounting tricks,” he told ABC radio. "I tell you it is audited. This is an audited statement.”

Unfortunately, as the Treasury later discovered, there were indeed accounting tricks. Lots of them, as Fairfax’s invaluable economics correspondent Peter Martin has detailed. For instance, capital expenditure had been confused with recurrent expenditure, allowing the Coalition to claim the sale of an asset (the health insurer Medibank Private) as an ongoing saving. Some policies were double counted, some weren’t counted properly, while others weren’t counted at all.

As a result, the bravest people in the 2010 costings charade may well have been HWK Horwath auditors Geoffrey Phillip Kid and Cyrus Patell, who were later fined and reprimanded by the Institute of Chartered Accountants for professional misconduct.

It’s not all smoke and mirrors. One policy the Coalition has been commendably upfront about is minority government. The Coalition won’t form one, which means that, as happened in 2010, if it doesn’t win enough seats to govern in its own right, then the Coalition will sit out the term in opposition.

While many conservatives will no doubt applaud Tony Abbott for his clarity, the decision not to join any governing coalitions does seem a strange decision for an opposition that goes by the name of … the Coalition. It’s surely unlikely that the Coalition would ever join with the Greens, of course. But in Katter's Australian Party the Coalition may find a like-minded minor party.

More concerning is what this decision reveals about Tony Abbott’s views on parliamentary democracy. The Australian parliament has featured several minority governments in its 112 years, including the current one. As many Europeans can attest, governments stitched together from disparate parties are a quite normal feature of parliamentary democracy.

By refusing to negotiate with independents and minor parties to achieve legislative outcomes – including to implement its own election promises – the Coalition is effectively saying it can only govern with a clear majority. That’s disappointing, and arguably anti-democratic. It’s also counter-productive. Does Tony Abbott really think the Liberal Party is better off for having sat out the past three years in Opposition? How about another three? After all, it was with the support of the independents and minor parties that Julia Gillard was able to push through so many of the laws Abbott opposes. Like so much of the Coalition’s threadbare election platform, it just doesn’t add up.

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Geofferoo
Posted Tuesday, August 6, 2013 - 13:20

Sorry? You actually believe Tony Abbott wouldn't form a minority government to get his lycra-clad derriere into the Lodge?

He'd ditch that 'promise' in a nanosecond if he got a sniff of the PM's office.

He's an habitual, proven, compulsive liar. 

James44
Posted Tuesday, August 6, 2013 - 13:45

The mainstream media is not holding Abbott to account over his budget claims. Surprise surprise but disappointing nonetheless. It is too bad many seem to think it is only Murdoch to blame for anti-Labor bias. Far from the truth but what can we do? (Except subscribe to NM etc, but what about the bogans?).

Geoff Larsen
Posted Tuesday, August 6, 2013 - 15:19

Sorry Ben but you write a whole lot of twaddle. If the coalition had held the treasury benches these last 6 years you can bet your britches they would be running surpluses now.

The coalition will announce their policy costing, after PEFO & well in front the 7th Sep election however not the day before the election as Labor did in 2007!!!.

Perhaps you could spend your time more wisely debunking Senator Wong's $70 Billion nonsence. I'd like to see that.

Doug S
Posted Tuesday, August 6, 2013 - 15:52

Am I mistaken ?

I would imagine the actual total amount of the budget figures and their accuracy is quite unimportant so long as both parties are giving us the information on exactly how they would use the amount the Treasury predicts.

The figures will continue to change, what is important is the principals underlying the budget strategy.

Is my logic totally wrong and naive or are Abbott and Hockey hiding from scrutiny?

Doug S
Posted Tuesday, August 6, 2013 - 16:00

Geoff Larsen

 

If Abbott and Hockey had been running treasury for the last 6 years they would have implemented a policy of austerity that would have cut debt dramatically like it did in all the other countries that implemented that method of dealing with the financial crisis.

 

The downside of that policy would have been massive increases in bankruptcies unemployment and recession. 

 

Yes our debt would have been lower but our society and our economy would have also suffered.

 

I can have a huge personal  budget surplus if I sell my home and my car and live on the street, I would have no job and no home but I would have money in the bank.

 

Personally I prefer to have a small manageable debt a job and a safe warm home for my family.

 

You obviously would choose the other option ?

cloa513
Posted Tuesday, August 6, 2013 - 16:48

Of course the banks want more debt- bigger profits for them- things that banks have a long history being disasters- cap that CEO salary+benefits and he'll soon shutup.

Big government is a drain on society. Government should stick to being a policemen and proactive in health and social support to help people help themselves. Empower (with some pressure)  industry to take charge of infrastructure and other central issues such as employment and research and get out of  way in other ways- legal reform and regulation stripping, working to make low cost from utilities.  

 

Abbott shouldn't making policies to do things (we want people with limited information to make important decisions)- he should be setting the framework -values and preferably science-based  (really fixed in stone) from which he will make policies when he gets power.  Making policies is what got us in this mess now.

Gordon Comisari
Posted Tuesday, August 6, 2013 - 16:50

Ben,

Why did it take so long to ask the right questions?

Why did it take so long to reach the right conclusions?

The Murdoc / Rinehart agenda is slowly being exposed and the LNP is found wanting.

Hopefully it is not too late! Will the brainwashed populace finally get the message?

The should be asked: Have Murdoch and his MSM/IPA/LNP mates made up your mind how to vote?

fightmumma
Posted Tuesday, August 6, 2013 - 17:02

What Abbott and his crew want, is something akin to what America has, therefore great savings on any public spending, especially welfare for the vulnerable and disadvantaged who the dominant groups, ruling, political class can define as lazy and wasteful...so they can commit an act of a social construction of a threatening national debt (which others from overseas have told us is NOTHING at all to be concerned about compared to other countries anyway)...and then justify gross cuts and attacks on what is left of the welfare state through "austerity measures." 

The error is to channel policy towards the interests of so-called "investors" because these people and groups are under no obligation to invest their wealth in our nation and thus in our people...any manufacturing and industry that can be moved offshore to cheaper employment and workplace condition countries is where our national wealth has gone...so that the personal private wealth of a narrow number of people is guaranteed.  Abbott is listening to the little private think tanks who believe in fullscale freemarket ideology and to nothing else...and these think tanks have no interest in social wellbeing or harmony in our society..only in their own bank balances and shareholders' interests...governments should balance out all interests and ensure all people have certain standards of living and opportunities in our advanced, wealthy,capitalist, "civilised" society. 

We see no interest in creating jobs, only in forcing people to take the available jobs with Abbott's preferred think tanks requesting lower minimum wages...so where does the common Aussie benefit from such ideology...from Abbott and his AbbiBunch?  When Abbott has his spiffy little election adverts about wealth and opportunity for Australians - people need to be mindful to ALWAYS ADD "For some groups in Australia" after every one of his asertions, because he is not interested in everybody, only in the chums in his preferrred think tanks.  Just contemplate what our society will look like with cut welfare payments and cut minimum wages/conditions...the homelessness, unemployment, eligibility criteria for welfare, working conditions (weekend rates ta-tah), family wellbeing, waiting times for public health services or having those cut like in USA (which has very poor health outcomes on the worldstage even though it is such a wealthy nation and can afford to wage wars on foreign shores).

 

Speed
Posted Tuesday, August 6, 2013 - 17:18

Geoff, if the coalition had remained in power, the Prime Minister would still be John Howard. Australia would have had an emissions trading scheme more like the one to which a multi-party committee agreed in 2011 than like Rudd's CPRS. Superannuation would still have generous tax concessions of the kind that led some people to sell their homes in 2007.

The two opposing refrains in 2008 were "Labor shouldn't be plunging the budget into deficit" and "Malcolm Turnbull hasn't said that he'd do anything different.". It's unlikely that Costello would have pursued a much different strategy.

Maybe Howard/Costello would have given big personal tax cuts to the top bracket like President Bush did in 2008. That doesn't achieve much other than reducing revenue.

Maybe Howard would have given bigger building grants to private schools and overlooked state schools. Maybe, they would have given big subsidies to the Australian car industry rather than to home insulation.

Costello has run deficits before. I don't know whether he would have won awards for his economic stewardship like Swan did.

Stripling
Posted Tuesday, August 6, 2013 - 17:29

Major Parties are about balancing the scales between;

The Multi-National Wealth that owns the Means of Production and

The Australian People who work in their Industries.

Vote

1 for Civil Liberty

2 For Social Justice

3 For Environmental sustainability

4 For a major party.

Depending on what electorate you are in that could be a range of people in the lower house- some of them independants. 

If Abott is not prepared to do business with the parties that represent the issues that have been swept aside.

Then why should he get the nod?

In the Senate we are going to have to fill in the entire tea towel to vote properly. and I want to know who has alocated what preferences?

As for the budget debate, The Government has to invest in quite a lot of areas so I'm not the slightest bit interested in Surplace Lip Gloss, the balance of payments is much more an indicator and its going to take some government investment in a mining downturn.

 

o_cleenskin
Posted Tuesday, August 6, 2013 - 18:03

Geoff Larsen., why don't you give us all the benefit of your economic mastery to debunk Ms Wong's claims? I think  Ben and Ms Wong are way too busy to bother responding to a guy, like you, who can't spell.

Geoff Larsen
Posted Tuesday, August 6, 2013 - 22:36

 o_cleanskin

Their so called $60 Billion has been debunked by many including PolitiFact on Aug 3.

http://www.politifact.com.au/truth-o-meter/statements/2013/aug/04/penny-wong/coalition-return-federal-budget-good-position-gove/

 

Our ruling

Frustrated by the Coalition’s reluctance to release a thorough costing of its election promises to date Labor has come up with one of its own. It's attempting to do the Coalition's own job — and frame the economic debate during the campaign.

Conveniently it totals $70 billion, which is a figure the Coalition itself has tossed around in the past, a couple of years ago. We do not yet know if $70 billion is the number.

But looking at Wong's own statement, some $20 billion of it shouldn’t be there, and billions more are the result of guesses, not all of which may turn out to be right.

We rate the statement False.

zielwolf
Posted Tuesday, August 6, 2013 - 23:26

On May 6 this year the AFR quoted Hockey in a speech to the IPA. He promised that the Coalition would make severe and drastic cuts to welfare and spending. And that details of these cuts will only be revealed after the election has been won. Hockey argued that universal access to welfare payments needs to end now. You can imagine how much money for example a cut to welfare like realigning the DSP and the Aged Pension with the Newstart Allowance would save (about $10 billion a year). I doubt they'd dare anything as drastic as that but I'm sure Hockey and Abbott are looking to the current UK Coalition model of savage welfare cuts as a guide to their future policy. Hockey thinks we should be more like Asian countries - where there's no social safety net and people (unemployed, disabled, elderly) either rely on family or beg/starve in the streets. I doubt we'll be hearing anything substantial from the Coalition during the campaign about costings and spending cuts. They'd never win the election. I think that's specifically why Hockey promised details will not be revealed until after they have won government. Campbell Newman Part 2.

meski1
Posted Wednesday, August 7, 2013 - 00:14

Geoff:  It can't really be said to be debunked until the Coalition release their costings on it.  Till then,  Politifact's own claim is nothing but their assertion, and equally unproven.  So lets disregard that as well.  Penny's statement has equal validity as Politifacts.  THey both have motive.

 

PolitiFact Australia is a non-partisan, independent journalistic venture run by Peter Fray, the former editor-in-chief of the Sydney Morning Herald,   

Hmm.  

 

Speed
Posted Wednesday, August 7, 2013 - 10:52

The rest of that article, as I recall, reads like, [i]Abbott pulled seventy billion out of his whatsimacallit a few years ago.[/i]. There's a big hole but the Wong's numbers have been added up in a way that reached a target chosen by the Liberal Party.

I see this morning that the Liberal Party have announced a reduction in company tax as a policy. It's true that this would reduce costs for companies and potentially keep more in business and more employees working. This announcement however is inconsistent with their increase in tax on business to fund a new maternity payment targeted at salaried voters earning between 150K and 300K, their opposition to the Resources Super-Profits Tax, which was to supplement a reduction in company tax, and their cries that the Carbon Tax would hurt individuals, who needed more compensation, but not businesses.

fightmumma
Posted Wednesday, August 7, 2013 - 13:40

Speed, yeah, it is amazing that in a time where national wealth is apparently in crisis, that the Liberal party would reduce its income even further...the whole approach is to make rich people richer, poor/vulnerable people even more so, and to have some vagie ideology that the rich people can pass on the benefits of their wealth through employment...though there are no obligations for them to do so...no laws stating they MUST do so, nothing protecting us from jobs going overseas...or our wealth going overseas (like with the car manufacturing industries).  Any policy from Abbott must be interpreted as a policy ONLY good for the rich end of society with everyone else being at the utter mercy of the company decisions of those people...not really very democratic or just...when those companies do not have responsibilities to their society and getting less and less if they pay less and less tax.  Our governments should be changing approach altogether by more taxes and directing these into grassroots, localised organisations who have the local knowhow, innovation and expertise to make our collective wealth of benefit for ALL of us in a more considered, active, knowledgable way.

fightmumma
Posted Wednesday, August 7, 2013 - 13:41

oopsy - "vague" ideology not vagie!!

martyns
Posted Wednesday, August 7, 2013 - 17:48

Congratulations on a terrific article Ben. Our Right wing contributors have tried to nullify it (as is their right) but what they have written is arrant nonsense, rather like the utterances of Hockey and Abbott.  On Wednesday 7th August, I watched Allan Oster (a senior economist at the National Australia Bank I believe) talk about the interest rate cut and Abbott's proposed lowering of business tax. Mr Oster is not a 'rabid leftie' and his views should be listened to. He said that the lower interest rates wouldn't help boost the economy because people, including business aren't spending. Hw went on to say that Coalition tax cuts would hurt revenue and wouldn't help big business because that segment will be hit with a tax to partially  pay for Abbott's maternity policy. His final comment (please note Right wingers) was to call for the government to stimulate our economy by spending on infrastructure which, he said, would give encouragement to business, generate employment and tax revenue and boost confidence. When asked about a deficit increase, he said that Australia's deficit was negligoble by world standards and it didn't matter if it increased. He is probably one of the wiser heads to which Ben refers in his article

ozzydazz
Posted Thursday, August 8, 2013 - 15:55

Your just an out and out dill Ben Eltham. To think we have clowns like you writing anything about anything. 

ozzydazz
Posted Thursday, August 8, 2013 - 16:02

Oh..  by the way good to some intellect on this ALP propaganda site, Geoff Larson seems to be the only one that's actually talking fact. The rest of the comments and article are just plain crap and dilusional thinking.

Just can not wait to start reading this website with a coalition government in control, the rubbish that will spew out of these page will be entertaining to say the least.