Timing was crucial to spin out of black hole

Two big economic set pieces next week are unlikely to float any life rafts for Labor's economic credentials in the run-up to the election.

Two big economic set pieces next week are unlikely to float any life rafts for Labor's economic credentials in the run-up to the election.

Labor could certainly use one after the debacle served up by Prime Minister Kevin Rudd, Treasurer Chris Bowen and Finance Minister Penny Wong on Thursday.

On Friday Labor continued to argue that a $10 billion hole existed in the Coalition's budget savings plan, including a $2.4 billion shortfall on an estimated $5.2 billion saving from cutting 12,000 public-sector jobs.

With Treasury, the Department of Finance and the Parliamentary Budget Office all coming out with statements making clear that advice given to the government at its request before the election did not amount to costings of Coalition policies and the Coalition privately circulating a PBO costing that backed up its own number work, it was a lost cause, however.

Labor's decision to release the confidential advice it received from the departments betrayed growing desperation as the polls point to a comfortable Coalition victory.

The Coalition's decision not to release PBO costings of policies that shadow treasurer Joe Hockey said on Wednesday would save $31.6 billion over four years gave it an opportunity, but it seems to have ignored a crucial timing issue.

The advice it sought was based on 12,000 job cuts, but it was sought and received before June 30 this year. It projected out four years, but stopped one year short of the four-year assessment that the Coalition sought from the PBO after June 30: the year that Labor's assessment missed generated savings of $2 billion.

As Treasury secretary Martin Parkinson and Finance Department secretary David Tune put it in their joint statement distancing their departments from the $10 billion hole claim: "Different costing assumptions, such as the start date of a policy, take-up assumptions, indexation and the coverage that applies, will inevitably generate different financial outcomes."

Deputy Prime Minister Anthony Albanese argued on Friday that was all Treasury and Finance were saying - that different inputs produce different outcomes - but that was the problem: the time period for the calculation Labor sought was different, and as a result, Labor's $10 billion hole claim was wrong.

Next Tuesday the Reserve Bank's board meets. It has taken its cash rate down from 4.75 per cent to 2.5 per cent in less than two years and has cut it by a half a percentage point this year, including a quarter of a percentage-point cut on August 7.

Another cut would be a double-edged political sword for Labor. The Coalition would argue that the Reserve was taking the cash rate down because Labor had mismanaged the economy. It argued that after the August cash rate cut, however, and ran into an obvious question: was it suggesting that a rate cut was bad news? A rate cut would, on balance, be a plus for Labor on election eve. There is, though, next to no prospect of it happening next Tuesday.

Under the leadership of governor Glenn Stevens the Reserve underlined its independence in 2007 by raising its cash rate in the middle of the election campaign that resulted in a Rudd Labor victory. The vote this time comes only five days after Tuesday's meeting, however, and the cut in August may have been pulled forward to avoid making one now.

The Reserve remains on an easing bias after the August cut, but the equation it is examining contains several moving parts. The national accounts are due the day after the Reserve meets, for one thing, and the fate of the Australian dollar is also crucial.

The dollar has fallen about 15 per cent since mid April, and the Reserve still believes it is too high. Its direction is unlikely to be decided until the US Federal Reserve meets on September 18 to consider when to wind down its $US85 billion-a-month "quantitative easing" liquidity injection into the US economy.

A retraction of QE will tighten money flows and set the $A up for further declines as US bond yields continued to rise and $A fixed-interest assets became relatively less attractive.

Until the Fed confirms a QE easing timetable and Australia's June-quarter economic report card is issued, it is difficult for the Reserve to move, and the minutes of its August 7 meeting signal as much by reporting that the board decided to word its rate cut announcement to "neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates further".

The national accounts on Wednesday offer Labor limited political upside, and some risk.

The consensus estimate of market economists is that the economy grew by a subdued 0.6 per cent in the three months to June, and by 2.5 per cent in the year to June, about half a percentage point below the longer-term trend as the non-resources economy continues to resist a baton-change from the retreating mining and oil and gas investment boom.

Labor would be open to attack if the growth number disappoints, and it might. Retail sales that account for about a third of consumption, for example, have been weak. They fell by 0.1 per cent in April, rose by 0.2 per cent in May and were unchanged in June.

A growth result that hits expectations would meanwhile still be growth that is below par. There is no political mileage in that for the government.

Growth could surprise and beat the predictions, of course. But it would have to get back up to the 3 per cent trend to be a political game-changer, and that's unlikely.

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