Having agreed to Labor’s policy proposals on DisabilityCare, the increase in the Medicare levy and education funding, Opposition leader Tony Abbott has moved the Coalition’s fiscal policy plans for the return to surplus and government debt to equal that outlined by the government.
No longer is Abbott promising a bigger or earlier budget surplus.
There were a couple of curious throwaway lines in his campaign launch yesterday that no one seems to have noticed.
At the launch in Brisbane, Abbott said that “by the end of a Coalition government’s first term, the budget will be on track to a believable surplus.” This was met with applause from the crowd.
But it is a very odd commitment given that the current fiscal position outlined in the Pre-Economic Fiscal Outlook document is for there to be a surplus of $4.2 billion in 2016-17 after a wafer thin deficit of $4.7 billion in 2015-16. In other words, there already is a “believable surplus” in the current budget figuring in just three years’ time.
It needs to be remembered that the PEFO projections are based on Treasury’s relatively pessimistic view about global growth and the terms of trade over the next three years, which means there is a lot of upside to these projections even without any policy changes (A pre-election budget on the sober side, August 13). This means that for even a slight uptick in growth or inflation from the current forecasts, the budget will be propelled into surplus in 2015-16 with an even larger surplus for 2016-17.
And this is all under the Labor government’s policy plans.
Abbott’s pledge on the return of the budget to surplus is effectively the same as Kevin Rudd’s.
Abbott elsewhere implicitly embraced the current profile and magnitude of the return to budget surplus under the Labor government, saying that “within a decade, the budget surplus will be one per cent of GDP”. Interestingly, this is same as the average size of the budget surpluses already factored into the four years from 2019-20 outlined in the PEFO. It is already going to happen, based on current economic projections.
Seemingly gone are the surpluses in every year of the Coalition government that only last year Shadow Treasurer Joe Hockey was spruiking.
Abbott’s economic conversion did not end there, when he also noted that “if our vision is realised, within 10 years Australia will have lower, simpler, fairer taxes. There will be two million more jobs.”
It is the pledge on jobs that is underwhelming. If Abbott is true to his word and only 2 million jobs are created by 2023, it implies the unemployment rate rising to around 6.5 per cent over that time, from an average level of just 5 per cent over the past 5 years. This 6.5 per cent unemployment rate target for the Coalition is based on an assumption that the population grows, on average, at the same pace as the last year and the workforce participation rate is steady at the most recent estimate of 65.1 per cent.
A drover’s dog would deliver 2 million jobs over the next decade given these dynamics. Abbott gave no commitment on the unemployment rate, probably because he knows it will be difficult to reduce it much from the recent levels. The real skill would be creating 2.25 million jobs over the next decade and getting the unemployment rate back to 5 per cent or lower.
Abbott gave no such pledge.
There was also some confusion from Abbott was when he said, “the current government has turned $50 billion in the bank into debt spiralling towards $400 billion that our children and grandchildren will struggle to repay”.
The first point to note is that the “$50 billion in the bank” was in fact $44.8 billion in net financial assets that were in place in June 2008. It is a $5 billion error to start with.
Abbott’s reference to “debt spiraling towards $400 billion” contains an error of a further $30 billion. The PEFO confirms debt will peak at $370 billion. Perhaps more mischievous is Abbott starting the sentence with a reference to net debt and then comparing it to gross debt. Abbott did not mention that when the Howard government left office, gross government debt was $47 billion. Nor did he mention that net debt in June 2013 was $162 billion.
It is to be hoped that these errors are political posturing and not a true reflection of Abbott’s understanding of public finances.
As the election day draws nearer, the mantra from the Coalition that the Labor Party is a bad economic manager has been replaced with the true story that ‘we will do no better’.
Abbott has said during the campaign that he would prefer to under-promise and over-deliver, and he is certainly living up to the first part of that commitment.
Stephen Koukoulas was senior economic policy advisor to former prime minister Julia Gillard between September 2010 and July 2011.