Treasury's guess as good as any

So what's really troubling Joe Hockey's belief system and delaying release of policy costings - Treasury's estimates or internal Coalition differences on the policies to be priced?

The Coalition has had Treasury's best fiscal guess for 11 days now. The official pre-election economic and fiscal outlook (PEFO) numbers are virtually the same as those in the economic statement on August 2. A difference of $9 million in the forecast 2014-15 deficit is less than a makeover for a marginal electorate's football ground.

Hockey (right) was getting his denial in early when he declared he didn't believe the economic statement figures and, therefore, he can't believe the PEFO figures either. If the man who would be Treasurer doesn't believe his department's best efforts, one might assume his first big slash at the Canberra public service will be to sack the entire Treasury and put government bean-counting out to tender - departmental secretaries come much cheaper in Mumbai.

While the PEFO numbers are apparently not to be believed opposition education spokesman Christopher Pyne said Joe Hockey and finance spokesman Andrew Robb would consider the numbers and release their costings "in plenty of time". But they've effectively been looking at those numbers for the better part of two weeks, and looking won't change the arithmetic.

About the only real difference between the PEFO and economic statement is that the PEFO authors include an alternative view of what the unemployment rate might be in the "projection" years of 2015-16 and 2016-17. The statement, and the first bit of the PEFO, make the rather heroic assumption that unemployment will suddenly drop from 6.25 per cent at the end of June 2015 to 5 per cent a year later. You don't need the computer modelling grunt of Treasury to think such rapid growth would be extraordinary - and that the Reserve Bank would react to such a fast-growing economy by boosting interest rates to cool it. The more credible PEFO "alternative projection" is a more gradual closing of the output gap, with unemployment easing to 6 per cent at the end of 2016 and 5.75 per cent in 2017 - which would add $3.2 billion in unemployment benefits in those two years. Both sides will no doubt prefer to ignore that alternative rather than pluck another $3.2 billion out of the budget air.

The authors signing off on PEFO, Treasury's Martin Parkinson and Finance's David Tune, also go to some effort to explain the difficulty of forecasting animals as wild and unpredictable as the Australian and global economies.

"Against the backdrop of a still-challenging global outlook, the Australian economy is expected to transition away from resource investment-led growth towards broader-based growth, although this transition may not occur as smoothly as forecast," the document warns. In other words, forecasting is a mug's game and even Treasury's best efforts need to be taken, if not with outright disbelief, with some understanding of the craft's limitations.

PEFO claims the same sort of confidence band as the Reserve Bank's forecasting efforts. Treasury and Finance are 70 per cent confident this year's GDP growth will be between 2 and 3.5 per cent - hence the headline forecast of 2.75 per cent, smack in the middle.

Global factors outside any Australian politician's control could weaken the outlook, but they could also improve it. I don't recall any of the army of commodities forecasters predicting iron ore prices would be enjoying their current lift.

The bottom line, then, is that the PEFO numbers may as well be believed as they are likely to be as good or bad as anybody else's.

And there remains the question posed by Rhys Muldoon on Q&A on Monday night and left unanswered: "When will the Coalition believe Treasury and when will the Coalition not believe Treasury?"

Michael Pascoe is a BusinessDay contributing editor.