The metamorphosis of Joe Hockey from Scrooge to Santa

A caterpillar emerging from its cocoon as a butterfly has nothing on the metamorphosis of Joe Hockey.

The Hockey of "budget crisis" fame, the government debt warrior, the dry who never met a deficit he didn't hate, has turned into the half-trillion dollar man, spent all the $7.1 billion in policy savings he was trumpeting just five days ago and blown out this year's deficit by $7 billion beyond Labor's best efforts. And the financial year is young.

Overshadowed by the commission of audit announcement and boosting the debt ceiling from $300 billion to the magic half-trillion is the former fiscal Scrooge playing Santa Claus down at the Reserve Bank. Will Joe Hockey raid the RBA for a dividend with which to shave the deficit? What a foolish and wrong-headed question I posed here on Monday - Joe is giving the RBA $8.8 billion, which, obviously, blows out the deficit by the same amount.

But the Treasurer might not be quite as politically generous as he at first seems. Hockey has said that this year's deficit belongs to the Labor Party. No doubt he will say the $8.8 billion gift to the RBA and not taking a dividend this year is repairing damage done by Labor. Like most things said by politicians about their enemies, that's only partly true.

Hockey actually is performing like any new broom in a corporation: load up the previous management with all the debt and problems, write everything down that you can, then claim the subsequent upside. Yes, boosting the RBA's reserve fund to 15 per cent of assets blows out this year's "Labor" deficit - but it also means the RBA will be able to pay a big dividend next year when it will be Joe Hockey's budget. Neat, eh?

The RBA's reserve fund exists to absorb losses when the currency runs against the bank. From a high of 14 per cent of assets in 2004 (when it paid the federal government a $1.3 billion dividend), paying big dividends and the currency's appreciation reduced it to just 2.1 per cent in 2011. It crawled up to 3.8 per cent this year despite Wayne Swan's infamous $500 million dividend raid. Hockey's $8.8 billion payment to the RBA effectively enshrines 15 per cent as the desired prudential level.

A weakening currency at some stage over the next few years should see big RBA profits again, which can contribute to the bottom line of Hockey budgets. That's the way deck-clearing is supposed to work.

As to the super-boost to the debt ceiling, there is merit in Hockey's desire to take the ceiling per se off the political agenda. The size of this increase further boosts the likelihood of a major rise in government borrowing to fund infrastructure projects.

There's been no shortage of indications from the government about that. Hockey has been musing about a way of separating debt for capital projects from the rest. Assistant Treasurer Arthur Sinodinos 10 days ago said Infrastructure Australia was looking at ways to engage private sources of funding for infrastructure, including infrastructure bonds.

So the big-deficit, big-borrowing Joe Hockey is the Treasurer, not whoever was shadow treasurer up to September 7.

But the game yet to be played is what will happen to the results of the commission of inquiry. When the backbenchers' practical concerns about keeping their jobs meet the Business Council's theories about the role of government, politics will indeed be kept interesting.