Can Swan summon a savings solution?

The treasurer is not going to 'booby trap' the budget ahead of a likely Coalition takeover but will his savings be enough to fund Gonski and the NDIS?

Crikey

“It’s a trap!”

I always wanted to start a piece that way.

Sadly, it’s not the case. Treasurer Wayne Swan is not preparing to sabotage the budget. Governments can change spending and taxing plans. Swan’s opposite number Joe Hockey could do it with a mini-budget this November when he delivers the Mid Year Economic and Fiscal Outlook.

No, far from being some sort of colossal booby trap erected to damage an incoming Coalition government, Swan’s commitment to detailing 10 years’ worth of savings to fund Gonski and the NDIS is a key test of tonight’s budget. Without an extended account of long-term savings beyond the four years of forward estimates, the government’s commitment to NDIS and Gonski would be profoundly fiscally irresponsible, particularly given the structural state of the budget.

Even Hockey this morning declined to buy into the “trap” stuff, saying he wanted Swan to have a go at outlining the savings – even though he’s ready to dismiss the numbers as confected. Though Hockey had a point when he wondered why, on the day of the budget, the treasurer was talking about what the opposition should do rather than what he was going to do.

And don’t buy the stuff about how governments can’t forecast savings any more accurately than they can forecast revenue. The two are entirely different, because spending is in the control of the government. Even for demand-driven programs (for example, Medicare), governments usually know the key variables for uncapped, demand-driven programs. For example, they know what a new drug would cost and the likely take-up in the community, what other drugs it would replace thereby offsetting the cost, what indirect positive or negative cost impacts it might have elsewhere in the health system. That’s the job of the Department of Finance, which has shadow areas for all portfolios. They work with line agencies to establish what impact demand-driven programs will have on the budget.

And for well-established demand-driven programs, you also have a history of growth – how much the cost of the private health insurance rebate has grown, for example.

You won’t be able to accurately cost demand-driven programs down to the last cent, there will always be a margin of error given the process relies on assumptions. But you’re not trying to forecast the state of the economy years out or, as Treasury does, assume out-years will revert to trend for the purposes of projection. As for capped programs, they’re directly controlled by government, so you can cost them down to the last cent.

Accepting there’ll be a margin of error, the 10-year savings figures are as significant as the deficit figure for next year, if not more so. Even if the Coalition abandons Gonski (or even, which is unlikely, it abandons or delays the NDIS) it is likely it will bank the savings put forward by the government for the goal of making the budget more structurally sustainable.

Given the polls, this will be Swan’s last budget. In terms of economic outcomes, he has been an excellent treasurer, and got some big calls right, even if at the time the commentariat didn’t agree (the 2008 bloodbath-that-wasn’t being the most notorious). One of the few areas where he only gets pass marks, however, is in his willingness to tackle middle class welfare – although a pass is far better than the Coalition, which piled up the handouts when in government and in opposition attacked Labor when it made some marginal reductions. This is likely to be Swan’s last chance to improve on that score, but it will require going further than cancelling some slated Family Tax Benefit rises and cutting super tax concessions by $1 billion a year.

Once in government, the Coalition will (continue to) demonise Labor’s economic management, just as it did from 1996. But a strong budget today, focusing on long-term savings, would minimise the capacity for damage at least among informed observers – if not among voters, who’ve already concluded Labor’s expertise perhaps extends as far as managing the economy for workers, but no further.

Labor and Wayne Swan might hope for a stronger legacy, but that’s all they can hope for currently.

This story first appeared on www.crikey.com.au on May 14. Republished with permission.