Abbott Must Come Clean On The Budget Emergency


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.

Ben Eltham

Ben Eltham is New Matilda's National Affairs Correspondent.