Statistically significant: why the ABS cuts matter

The federal government’s sweeping cuts to the Australian Bureau of Statistics could cost the economy billions, and highlight the incredible short-sightedness of Australian politics.

Budget cuts at the Australian Bureau of Statistics might not seem like a big deal but compromising the scope and quality of our national statistics is a decision that should not be taken lightly.

These cuts highlight the short-sightedness of Australian politics, where immaterial budget savings are placed ahead of an organisation that plays a pivotal role in government decision-making and our economic well-being.

The ABS has failed to, as Prime Minister Tony Abbott might say, “live within its means” for years. Over the past three years it has accumulated deficits of $117 million, including $45.5m over the last financial year. Based on the current budget, the ABS must cut spending by $50m over the next three years.

Federal governments -- of both Coalition and Labor persuasions -- have been incredibly short-sighted when it comes to the ABS. More importantly, they have failed to truly appreciate the unique role the ABS plays in the Australian economy.

On a monthly basis, the Reserve Bank of Australia makes a decision on interest rates that affects millions of Australians and results in billions of dollars shifting across the Australian economy. This decision is based almost entirely on ABS data.

The RBA is not alone. Government departments, banks and businesses across the country rely on the ABS, yet the agency continues to be squeezed to the point where the quality of its output is threatened.

That threat became a reality yesterday when the ABS announced a reduction in the size and scope of its work program.

Beginning in 2014-15 the ABS will do the following:

Discontinue:

·       Environment collections from Australian households

·       Waste account

·       Measures of Australia's progress

·       Australian social trends

·       Survey of tourist accommodation

·       ABS funded component of culture, sport and recreation statistics

Reduce:

·       Industry statistics research, development and reporting in selected areas

·       Social conditions statistics research, development and reporting in selected areas

·       State and territories statistical services engagement and analysis activities

·       Regional statistics analysis and development

·       Macroeconomic research and development engagement in international activities

·       National information and referral services response times

·       External statistical education development programs

Review:

·       Review the house price index with the view to discontinuing it pending identification of alternative sources to meet the Australian national accounts and other requirements.

To the ABS’s credit, it has avoided making direct cuts to its most important statistical releases. Most of the cuts appear to be to the ABS’s social statistics, rather than its economic statistics, but I find it hard to believe that its major releases will not be affected by cuts to industry and state analysis and macroeconomic research.

This should be a major concern. To see why, we only have to travel back to 2008 and the onset of the global financial crisis.

Following a $20m haircut by the Rudd government, the ABS decided to reduce the scope and sample of both the retail trade and the labour force surveys, arguably the two most important monthly measures of the Australian economy.

What followed would have been comedic if it wasn’t so serious. As the crisis brought the global economy to a halt, the RBA and the federal government were almost completely in the dark regarding household spending. The labour force statistics were not much better.

During this period, the RBA cut rates sharply and the Rudd government decided to stimulate 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, or that reduced data won't ever cost the public purse billions of dollars?

In reality, these cuts are merely the tip of the iceberg. There will also be significant job cuts, with around 100 staff set to be made redundant to meet the reduced bottom line. I’d also like to know what will need to be cut in three years’ time to meet the next round of ill-advised budget cuts. Surely the ABS has already removed most of the low hanging fruit?

If the government had greater perspective,  it would actually look at expanding the ABS budget. We are, for example, one of the few developed countries that do not produce 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. A range of other statistical releases are also delayed compared with the United States or Europe.

Mostly people won’t care about budget cuts to the ABS. Its importance is lost when compared to cuts to welfare and health spending. However, the ABS directly and indirectly affects everyone in Australia. It is paramount to decision-making at the RBA and other government departments, our understanding of Australia and our ability to evaluate decisions made by the government.

With each passing year, the ABS gets closer to being unable to do its job to the quality that is necessary to promote sound decision-making. The Australian economy faces a range of challenges over the next few years that require accurate and timely statistics. To force cuts to the ABS' work program now may not be as reckless as the Rudd cuts from 2008, but they nevertheless show how short-sighted Australian politicians can be.

I hope Australian politicians look back fondly on their $50m savings when they eventually cost the Australian economy billions.