While we were preparing for the Easter-Anzac super long weekend, the secretary to the Treasury and the secretary of the Finance Department released the PEFO – pre-election economic and fiscal outlook – their official, once-every-three-years licence to tell us anything the government hasn’t told us but should have. And what was that? Not a sausage.
They made trivial updates to the budget figures and solemnly swore that all the rest of it “reflects the best professional judgement of the officers of the Treasury and the Department of Finance”. Wow. Really?
This despite the fact that, taken at face value, this is the most fiscally irresponsible budget since Whitlam. It’s a budget claiming to be able to cut income tax by $300 billion over 10 years and spend $100 billion on infrastructure over 10 years, while still returning to continuous surplus and eliminating the net debt over the same period.
No sensible person could believe all that was likely to come to pass. Far more probable that, should those tax cuts and spending increases actually happen, it wouldn’t be long before the budget was back in deficit and the debt was growing not falling.
We owe it to the Grattan Institute’s Danielle Wood and her team for joining the dots, provided in the bowels of the budget papers, to reveal how the cost of the tax cuts stays small until the last year of the budget’s “forward estimates”, 2022-23, then leaps to a cost of about $35 billion a year, rising to about $45 billion a year in 2029-30.
Never before have we had tax cuts remotely approaching such a cost.
The reason this grandiosity reminds no one of the Whitlam era is that no one takes it at face value. No one believes it could possibly happen. It’s a description of a future fantasyland.
First, it’s the budget of a chronically unpopular government desperately trying to bribe its way back to office, with little chance of succeeding.
Second, its supposed action is many years – and two or three elections – off in the future. Whatever transpires over the next decade, we can be pretty sure it won’t bear much resemblance to the scenario painted in the budget papers.
But if it’s all harmless bulldust, it can hardly reflect Treasury’s “best professional judgement” unless Treasury’s joined the happy fiction business. And the fact remains that, even more than its predecessors, this is a budget calculated to mislead.
What Treasury declines to make sure we realise is that the magic is all achieved by assumption. Convenient assumption.
Just as Wayne Swan’s promised return to permanent surplus – and his later assurance that his hugely expensive disability insurance scheme and Gonski school funding, though carefully hidden beyond the forward estimates, were “fully funded” – were based on overly optimistic assumptions that failed to come to pass, so is Josh Frydenberg’s promised return to permanent surplus and his assurance that his $300 billion in tax cuts and $100 billion in infrastructure spending are fully funded.
The trick has two parts. First, assume (as you did in each of the seven previous budgets) that, within a year or two, the economy’s growth will have returned to the old normal, where it will stay forever.
Second, assume the government will be able to sustain for many years a degree of spending restraint never achieved in the past. Make sure this heroic assumption is turned into a cabinet resolution, so it can be passed off as the seemingly innocuous assumption of “unchanged policy”, not the mere New Year’s resolution it really is.
Swan’s claim (proved by lovely graphs) that his hidden spending plans were fully funded was based on government policy to limit spending growth to 2 per cent real a year on average – a goal he repeatedly claimed to be achieving, but never did.
Frydenberg’s claim (with lovely graphs) that his post-forward-estimates tax cuts and spending increases are fully funded is based on a government policy to limit real spending growth to even less than Swan’s 2 per cent, which will cause total government spending to fall from 24.9 per cent of GDP to an unbelievable 23.6 per cent by 2029-30.
Again, we’ve had to rely on Grattan’s Wood to join the dots the budget papers don’t and tell us Frydenberg’s happy assumptions imply annual spending cuts increasing to about $40 billion a year by the final year. (She has also explained the tricks on which the government’s claim to have limited its real spending growth to 1.9 per cent a year relies.)
Meanwhile, back in the real world, the economic outlook is so strong the Reserve Bank is deciding whether it needs to start cutting interest rates immediately, or can afford to wait until unemployment starts rising.
And continuing strong growth, we’re asked to believe, is Treasury’s best professional judgement.
