Both sides must end budget dishonesty
Labor must deliver this mainly in the May budget; the Liberals must release their facts and figuring no later than early in the election campaign proper. And don't be in any doubt: it's a tall order for each of them.
That's for three reasons. First, both sides say they're committed to returning the budget to surplus during the next term of Parliament, with the Libs claiming to be able to do it earlier and better than Labor.
Second, the structural weakness on the revenue side of the budget is a problem for either side. It will be a particular problem for the side that wins the election, of course. But, to the extent Treasury takes account of this weakness in its revenue forecasts and projections in the May budget and the pre-election update, it will be a problem for both sides during the campaign.
Third, in their very different ways, both sides have made some very expensive promises. So, at a time when revenue growth is likely to be unusually weak, both sides are promising to be particularly generous in increasing spending or cutting taxes, while also losing little time in returning the budget to surplus.
To remind you, company tax, the mining tax and other taxes on profits are being hit by the fall in export prices, plus the dollar's failure to drop as expected. Income tax collections are being hit by the way eight tax cuts in a row have reduced the extent of bracket creep. And collections from the goods and services tax are being hit by the end of the era when consumer spending grew much faster than household incomes and by the shift in spending towards those items excluded from the tax, particularly private health and education. In theory, this is a problem for the states, not the feds. In reality, all major revenue problems common to the states end up on the feds' plate.
Because Labor is in government, and because most of its big promises are already enshrined in legislation, its moment of truth will come in the May budget. In particular, it will have to demonstrate convincingly how it will cover the cost of the twin centrepieces of Julia Gillard's
re-election pitch: the National Disability Insurance Scheme (costing about $8 billion a year by 2018) and the Gonski education-funding reforms (costing about $6.5 billion a year by the end of the decade).
Gillard and Treasurer Wayne Swan have promised to spell out in the budget the "structural savings" they will make to fully fund this additional spending. "Savings" may include reductions in tax concessions ("tax expenditures") as well as cuts in conventional expenditure, but "structural" means the savings must continue - and grow -over many years.
Rest assured, the opposition and the commentariat will hold Labor to account on this score. And one thing this means is that it won't be nearly sufficient for Swan to show how these two ever-more-expensive policies will be funded merely for the coming four years. If it takes up to six years for them to reach their full yearly cost, that's how far into the future Swan's figures must go to show he has that cost covered.
Further, credibility will be attained only if, unlike the past two or three budgets, this one involves no resort to creative accounting: no shifting of spending from the budget year back to the previous, almost-ended year, no use of Swan's "fiscal bulldozer" to push spending commitments off beyond the forward estimates where they can't be seen, and no exploitation of loopholes in the definition of the underlying cash balance, including funding spending on the national broadband network off-budget.
As for the Libs, if they're to come clean with voters there must be no repetition of their utterly dishonest performance in the 2010 election campaign, where they refused to have any of their promises properly costed by the econocrats, claimed their costings had been "audited" by an accounting firm when it had done little more than check the arithmetic and only after the election were revealed to have published costings that were wrong by up to $11 billion.
This time, there will be no excuse if they fail to use the services of the Parliamentary Budget Office. And with all the provisions of their own charter of budget honesty in operation, should they try the old stunt about being shocked to discover a big black hole when they saw the books, we'll know they're fudging. It won't be Ju-liar, it will be Tony-liar.
Twitter: @1RossGittins
Frequently Asked Questions about this Article…
An immediate federal election can be a "fiscal lucky dip" because both parties still need to fully cost their policies and explain how they'll be paid for. With structural revenue weakness and expensive promises from both sides, an early election risks unclear costings and surprise fiscal impacts that can affect markets and investor confidence.
Voters should look for clear, credible costings that show how major promises will be funded over many years — not just the next four. For Labor this means the May budget must show the structural savings that will fully fund the National Disability Insurance Scheme (about $8 billion a year by 2018) and the Gonski education reforms (about $6.5 billion a year by the end of the decade).
The article highlights several revenue pressures: company and mining taxes have been hit by falling export prices and a dollar that didn't fall as expected; income tax collections have been reduced by eight tax cuts in a row that limit bracket‑creep; and GST collections are weaker because consumer spending growth has slowed and spending has shifted toward items excluded from the GST, such as private health and education.
'Structural savings' are ongoing, sustainable reductions in spending or tax concessions (tax expenditures) that persist and grow over many years. They matter because funding large, continuing commitments like the NDIS and Gonski requires long‑term savings, not one‑off measures or accounting tricks confined to a single budget year.
The article warns against shifting spending into other years to make current budgets look better, using a 'fiscal bulldozer' to push commitments beyond the forward estimates so they aren't visible, off‑budget funding (for example, putting programs like broadband outside the underlying cash balance), and exploiting loopholes in budget definitions. These tactics can mask the true fiscal position.
The opposition should have all promises properly costed by official services such as the Parliamentary Budget Office and avoid the 2010 approach of not having thorough, transparent costings. The article criticises past claims that were only lightly audited and were later shown to be wrong by up to $11 billion, so full, independent costings are essential for credibility.
When revenue growth is likely to be unusually weak, promising generous spending increases or tax cuts makes it much harder to meet commitments to return the budget to surplus. Both sides face a tougher fiscal environment, so promises need honest costings and realistic plans for how to pay for them.
Treasury should reflect structural revenue weakness accurately in its revenue forecasts and projections in the May budget and any pre‑election update. The Parliamentary Budget Office should be used to independently cost opposition promises. Together they help ensure voters see realistic, comparable fiscal information during the campaign.
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