An ABS diet will starve decision-making

There are many avenues available to the Coalition to save money in their upcoming federal budget – we all know that billions are wasted each year through inefficient and misplaced policies. But it is time to stop squeezing the Australian Bureau of Statistics – compromising the quality of our data will only serve to comprise the quality of decision making.

The ABS has suffered budget problems for years. Over the past three years it has accumulated deficits of $117 million, including $45.5 million over the last financial year. Just yesterday Fairfax reported that the ABS needs to cut between 70 and 100 jobs to address the budget black hole.

Clearly the ABS is struggling to, as our Prime Minister Tony Abbott might say, ‘live within its means’. But I’m glad they haven’t and I’m troubled by the prospect of further budget cuts at the ABS – you should be too.

Federal governments – of both the Coalition and Labor persuasions – have been incredibly short-sighted when it comes to the ABS. Here is an organisation that is paramount to good decision making. The Reserve Bank of Australia, governments, banks and government agencies across the country rely on the ABS, yet the agency continues to be squeezed to the point that the quality of its output is threatened.

Every month the RBA meets to make a policy decision that affects millions of Australians – and it is mostly determined by ABS data. How comfortable are you with the RBA making those decisions using less reliable data?

The situation is certainly not without precedent – it actually happened in 2008. Following a $20 million haircut by the Rudd government, the ABS reduced the scope and sample of both the retail trade survey and the labour force survey – arguably the two most important monthly measures of the Australian economy.

In July 2008 the ABS reduced the sample for the retail trade survey by 59 per cent and the labour force survey by 24 per cent. As a result, the monthly seasonally-adjusted estimates (those most commonly used by analysts) became effectively useless. Luckily wiser heads eventually prevailed and the surveys were reinstated in full mere months later.

At the time I was at the RBA, as its household sector analyst, and for a brief period we were almost completely in the dark regarding the household sector. Highlighting how short-sighted the Rudd government was, these cuts occurred just as the rest of the world was falling into the largest economic crisis in eighty years.

During this period the RBA cut rates sharply and the Rudd government followed suit by stimulating the economy to an almost unprecedented degree. The stimulus worked out fine but the decision was made on data that was widely perceived to be unreliable. Who is willing to bet that it won’t work out so well next time?

The ABS has yet to announce which statistics will be affected and reports indicate that it has yet to be decided. The financial and economic community will be hoping it comes from those statistics with limited regular use but the reality is that the big savings come from the most important statistics – more people work on them and the budget for those statistics is simply larger.

If the government had greater perspective it would actually look to boost the ABS budget. We are one of the few developed countries that does not have a monthly measure of inflation. The ABS also releases its first read on gross domestic product over a month later than the likes of the United States. The RBA would certainly benefit from having more timely data.

Most people won’t care about the quality of statistics, particularly when job losses are being announced on an almost daily basis across the country, but the ABS directly and indirectly affects everyone. With every passing year the ABS steps closer to being unable to do its job to the quality that is necessary to promote sound decision making. I can’t help but find that troubling and you should too.