Tonight’s federal budget will not only confirm that the previous Swan-Parkinson budget was a complete shambles but will lock in a Coalition election win in September.
Therefore the 2013-14 budget will not only be the last for Treasurer Wayne Swan but also his Treasury secretary, Martin Parkinson.
The incoming government believes that Parkinson and the Treasury department he heads are not only hopeless forecasters but have succumbed to partisan pro-ALP policies. Accordingly, I suspect the knife will cut deep into the top of Treasury and it will lose the enormous influence it currently has upon the guidance of the Australian economy.
Fascinatingly when Parkinson first joined Treasury in 1991, the department had been held responsible by Paul Keating for wrong advice, which multiplied the severity of the 1990 recession. Treasury was therefore on the outer for a long time but when Peter Costello became treasurer its influence rose. But what made Peter Costello a great treasurer was that he knew when Treasury – and particularly its then head Ken Henry – was on the wrong path. Wayne Swan was never close to the business community and has never had the ability to know when Treasury has got it wrong.
Ken Henry did a major review of taxation for Wayne Swan. Many of Henry’s recommendations were good but the one Swan chose to implement was a mining tax which was constructed in a way which would have destroyed the industry. Swan did not have the mining industry background to understand that while new mining taxes could be justified, Ken Henry had got it wrong. But rather than cause Swan’s demise the Henry mining tax spelled the end for his prime minister, Kevin Rudd.
Meanwhile in the last budget Parkinson and Treasury made every mistake in the book.
Parkinson completely misunderstood the nature of the replacement mining tax and counted on a continuation of the commodity boom when the signs were clear that this was a very high-risk assumption.
In 2007 Parkinson left Treasury to head the Department of Climate Change, which was set up by Rudd. He was a passionate advocate of a market-based solution to carbon emissions – i.e. a carbon tax. When he became head of Treasury in March 2011 one of his tasks was to introduce the carbon tax.
September's election will be about many issues but Tony Abbott has declared that it will be a referendum on the carbon tax. It is ironic that the Treasury incorrectly forecast a high future revenue from the carbon tax and then spent it. Because longer term the Australian carbon tax was tied to the European price, the Treasury revenue forecasts became yet another fiction when the European price collapsed.
Many in the ALP believe that part of their government’s problem is the fact that Treasury under Parkinson has been "hopeless". And any vestige of creditability that the once great department had was lost when they incorrectly calculated the superannuation sums and the government had to use figures from outsiders to set policy.
So after September it will be back to the 1990s for Treasury. Many heads will be rolled and I suspect the new government will go elsewhere for much of its economic advice.