BUDGET 2013: How Abbott will tear up the blueprint

The 2013-14 budget is a rare event. The two people who framed the budget, Treasurer Wayne Swan and Treasury Secretary Martin Parkinson, are most unlikely to be involved in its implementation. So it is of limited value spending too much time on their future guesses, given they have been so wrong in the past.

Accordingly this commentary will be about what the Coalition is likely to do and then, separately, I will set out my future predictions based on a different approach to budgetary forecasts. 

During the last few months the Coalition brains trust, led by Tony Abbott, Joe Hockey and Andrew Robb, has been fine-tuning a detailed plan to determine what it will do in its first year of office.

Now with the Wayne Swan/Martin Parkinson numbers before them they will devote considerable additional time to fine-tuning their approach.

The action needs to be big because, assuming the Coalition wins the election, it faces a massive decline in investment around 2015-16 as mining investment virtually ceases, given current government policies.

Almost certainly one of the first moves of a Coalition government will be to remove the architect of so many wrong budget forecasts (see A quiet end to Treasury's tame double act).

The Coalition is being goaded by the government to say which measures it will cut. But that is not the way the Coalition brains trust is going to work.

It believes that the greatest inhibition to private sector growth, and the greatest removable cost burden, is the amazing Gillard-Rudd governments’ achievement of introducing more than 20,000 regulations.  It was these regulations (along with South Australian state government mistakes) that delayed BHP’s Olympic Dam from going ahead. Now it’s too late – the market has turned and Olympic Dam has been mothballed.

A similar event is happening in the coal industry, where regulations delayed coal infrastructure investment when it was economic. Mining industry regulations will be shredded but the excessive regulation goes all the way down the line and is making enterprises ranging from universities to milk bars awash with paper work. 

But behind each set of regulations is a group of public servants who report to someone who reports to someone else and so on. Thousands upon thousands of public servants have been appointed to implement these regulations. Of course some regulations are important but most either duplicated state activities or were mindless public servant games. So step one is to take to the regulations with an axe and retrench the public servants no longer required.  If anything, the services provided by the government will be improved. Under the Coalition plan, duplications with state regulators will be eliminated.

I am grateful to The Australian’s economic correspondent, Peter van Onselen, who has documented the staggering rises in administrative costs under Julia Gillard and Kevin Rudd. In health, administrative spending has doubled to more than $4 billion; social security administrative costs have risen six-fold to $3 billion and in education it has risen from token amounts to more than $300 million a year. Without too much effort there is a few billion to be saved. 

Some of the regulation the Coalition has discovered covers the outsourcing moves by the Howard government which have been made ineffective by Canberra public servants. Canberra dreamed up regulation after regulation to make it difficult for the outsourcing groups providing the service and enabled more public servants to be employed. 

Line by line all these regulations have to be unwound. Along with the excess public servant regulators go the public servants in involved in carbon tax collection and administration. A 5 per cent fall in public servant numbers – or 12,000 people in 2013-14 – would cut expenditure by more than $2 billion in 2014-15. 

The next step is to go through the multitude of small programs that the government introduces every year.  The number of these approaches 1,000. They have to be reviewed. Meanwhile there is grave doubt that the Gonski plan – which involves outlays of $470 million in each of 2013-14 and 2014-15, rising to $737 million in 2015-16 and $1,111-million in 2016-17 – will be delivered unless there is a major change in the Commonwealth fortunes.  

Of course if the Gonski administrative content is removed an effective lower-cost model might be possible. 

The basis of the Coalition plan is that while cuts will be important, the next step is about the growth that the reduction in regulation will foster as it frees smaller enterprises and energises them to start hiring.

If that happens, tax revenues will rise faster than the current estimates – at least until around 2015, when the mining investment boom ends. And that takes us to the Abbott revival – the subject of my second commentary.