Kevin Rudd has had his way. The reckless spending has indeed stopped. And yesterday the Coalition began reckless saving.
It’s hard to overstate just how badly the Coalition had handled the costings issue. Forget about the theatre about the Charter for Budget Honesty, a piece of legislation that has rightly been torn up and discarded by both parties. Forget about having a “mid-tier” accounting firm (as one Fin journalist snarkily described it) sign off on the costings — and ignore the smearing of that firm by some who suggest that having an old link to a Liberal politician somehow means they can’t, or won’t, add up correctly. Labor has done similar things in the past.
But at every stage the Liberals have acted like they have something to hide on Budget savings, and Tony Abbott has run a mile from the issue. He handballed it to Joe Hockey in May, and Hockey handballed it to Robb. Robb, who effortlessly eclipses Hockey every time the two are in the same room, has had the issue ever since. Yesterday, in a much-delayed press conference that barely allowed the commercial networks time to put together coverage, the final package was unveiled and, not to put too fine a point on it, it was rubbish.
You can expect Labor to cry “blowout” and “bungle” — Wayne Swan has done nothing but over the last five weeks — but there are two serious methodological flaws under major savings entries: the overestimation of interest saved from not committing to the NBN, which appears to be worth $800m, and the underestimate of the cost of the expansion of the education rebate, which the body Andrew Robb was citing yesterday as an authority, NATSEM, suggests is around $350m.
But both are the sort of flaws that occur when you don’t have access to the bureaucracy, and so can be forgiven.
There are other problems that can not so easily be ignored. One is the gimmick of the Coalition awarding itself a $260m “border security dividend” from closing Christmas Island, but not allocating any expenditure to the reopening of the offshore processing centre on Nauru, costs for which will start on Sunday, presumably, when Tony Abbott makes his first phone call as Prime Minister to that tiny speck in the Pacific. Scott Morrison ducked questions about the cost when he gave a press conference on the subject, but we know from previous assessments of the cost of the Pacific Solution that offshore processing is extraordinarily expensive, perhaps $200m a year. Perhaps that means Nauru will have to bear the full cost of running the processing centre and flying over and accommodating Department of Immigration staff needed for its operation.
Then there’s the fiddling of the accounts masquerading as a “conservative bias allowance adjustment”, reducing the standard over-allocation by Treasury for spending programs, from a party that has repeatedly ridiculed Treasury for failing to be perfect in its forecasts. Under the Coalition, magically, Treasury will acquire the ability it certainly never displayed under the Howard Government, of accurately predicting future expenditure, including which lapsing programs will be continued by politicians. That in effect swaps risk for marginal political gain: for the sake of boasting now that it will have a slightly higher surplus in the future, the Coalition increases the risk of a budget blow-out once it is in government. That’s worth over $2.5b.
Then there’s the efficiency dividend on the Public Service, increased to 2%. There may well be, as Stephen Bartos separately suggests today, room for large agencies to accommodate such a hit — they’ll just dip into large, unspent programs to fund it, although as an ex-Finance senior executive, Bartos might overestimate just how much program funding is sloshing around in line agencies after the first Swan Budget imposed a 3.25% slug. But that rise punished smaller agencies, and the Coalition’s 2% will repeat the dose. Small agencies don’t have large programs to dip into and their corporate overhead costs per staff member are higher, meaning there’s very little fat to trim before you have to start sacking bureaucrats. There will be a procession of small and medium-sized agencies coming to government and asking for assistance once this is imposed.
But the efficiency dividend, coupled with the two-year recruitment freeze, will be imposed at the same time the Coalition proposes a significant expansion of the Public Service to undertake its own programs, including hundreds of extra Customs, hospital board and Crime Commission staff, a new “Broadband Commission”, a new Ombudsman, new ministerial committees that need to be serviced — a conservative calculation is that the Coalition will need to immediately employ an extra 1000 public servants to implement its programs. That means an awful lot of HR staff in smaller agencies are going to have to be retrained as Customs officers and Crime Commission staff and health bureaucrats.
Given the recruitment freeze — which, by the way, means no Commonwealth job ads in The Weekend Australian and the Friday Financial Review for two years, cutting a key revenue source for the ailing national print media — there isn’t any logical alternative to such transfers of staff.
Still, as Kevin Rudd showed before the 2007 election, there are lazy savings to be found in declaring you’ll cut bureaucrats.
The only worthwhile saving identified by Robb and Hockey yesterday was to propose cutting the Pharmaceutical Benefits Scheme by $200m a year. Peter Costello had a proud record of reforming the PBS to curtail its explosive growth in the early part of the 2000s and Robb and Hockey have continued that tradition. It’s also likely to be an issue Labor will hammer over the next 48 hours.
But with a Budget laden with middle-class welfare, with handouts and pork-barrelling across so many portfolios, think of what a John Hewson or a Jeff Kennett could achieve in ripping into expenditure. Instead, Robb and Hockey went the lazy route.
What’s going to be the net result to our fragile economy if the Libs get their way?
Aren’t we supposed to spend our way out of recessions? As in, err… the opposite of what they will implement.
Madness.
I can see why the Libs are known as the party of superior economic managers.
/facepalm
Would it be accurate to say that counting “savings” such as the contingency reserve is only possible by having their policies not costed by Treasury? If so, it means that they only put together their costings after last Friday, or they had made the decision to no submit to treasury long before then.
Yes Mack, the very question I posed to Mr SBH this morning!
As for the Nauru solution, that may play out differently and the costings will be adjusted accordingly. Insiders tell the tale that Tony is a man of a previous generation he appears to be in a muddle over Nauru. We will have to wait for the carefully scripted, gospel truth about Nauru after the election. It seems Tony thought Nauru was housed at the top of a large building at 80 Collins street in Melbourne and the President’s name is Sir John Moore.
The costs of sticking refugees in there has been proven by the Victorian Public Service as less than other available alternatives.
Last time Nauru cost $1.5 billion. That would mean that closing Christmas Island and opening Nauru would cost over $1.2 billion