Following yesterday’s PEFO, Joe Hockey has announced that:
The federal Coalition will go to the September 7 election refusing to say when it will return the budget to surplus, claiming the key numbers in Treasury’s final pre-election budget update are too volatile to trust.
…Shadow treasurer Joe Hockey dismissed much of the document, which is prepared independent of government, and would only confirm the Coalition’s promise to improve the bottom line but not say when it would reach surplus.
The government declared the release of PEFO as “D-Day”, saying the Coalition now had no option but to release all its policy costings, but Mr Hockey refused to be rushed, indicating most key announcements would be backended closer to polling day.
Many policies were still with the Parliamentary Budget Office and “we are still waiting for the PBO to come back to us’’, he said.
The timing was “out of our control’’.
So Joe, what are you going to do when you’re in government? I have no great issue with failing to project a specific surplus date but the budget process does it every year. Perhaps we’ll revert to range forecasting which would be no bad thing?
But let’s not forget the primary reason we’re in this situation. The Howard/Costello government failed to save enough of the mining boom. When Labor tried to save more of it through the mining tax, the Liberals committed to its abolition from opposition, instead of debating and refining it into a fiscal stabilisation mechanism (Labor is far from blameless for its process).
That has left the budget overly exposed to an extraordinarily narrow set of commodities – iron ore and coal. Right now, after months of weak demand, we have a sudden flourishing of prices that will translate into higher taxes very briefly before we plunge again. A fiscal stabilisation mechanism, like that of Chile, would simply siphon off this volatility letting the budget remain on structural paths.
In fiscal terms, it’s hard to imagine how this boom could have been handled with less foresight so there is some irony in Joe Hockey’s refusal to provide specific surplus targets.
Back to today and Laura Tingle confirms my recent budget figures today:
Labor’s spending plans are, for all intents and purposes, now in the public domain. But what of the Coalition’s? The PEFO only crystallises the massive gap between spending commitments and savings that Abbott has outlined to date.
The Coalition says it will forgo what the PEFO estimates as at least $9.6 billion of carbon revenue and $3.7 billion of mining tax revenue, as well as $1.8 billion of fringe benefits tax (FBT) on cars, while keeping $4 billion a year of personal tax cuts and welfare payments.
It is also now going to match Labor on school funding, having previously argued it would save $3.2 billion over four years by not doing so, and will fund a paid parental leave scheme it costed last election at $4.5 billion.
It says it will cut company tax at a cost of $5 billion a year. It has pledged infrastructure spending of $17 billion without saying how much is new money.
Its position on Labor’s proposed $5.8 billion increase in tobacco levies, and the $733 million a year bank levy, is to be determined.
By comparison, the Coalition’s proposed savings look anaemic: a $1 billion saving from “red tape”; $500 million a year from cutting the humanitarian migration intake. It says it will reap $1.8 billion from an extra efficiency dividend on a public service already facing big cuts under Labor.
It says it will save $1.1 billion from not continuing an income supplement and $1 billion a year from ending the low-income super contribution. It says it will save $1.1 billion from 2016-17 by delaying increased compulsory super.
In short, its commitments add up to well in excess of $40 billion, yet its proposed savings, on the kindest of estimates, would be lucky to amount to $15 billion. That is a big hole to fill.
It is indeed, but Joe has committed now to not just spend less than Labor, which has been the recent mantra, but produce a better budget “bottom line” under PEFO. That means cuts, lots of cuts.
