Of deficit, surplus and stimulus-a-thon

It was only a couple of weeks ago that the word on everyone’s lips was deficit. First the Government wouldn’t say it, then it did, at approximately the same time the Opposition, which had been saying it, stopped. There was a brief crossover period in which the debate raged — well… whimpered — between Labor, which argued that it wasn’t heading for deficit but it might be responsible to do so if necessary, and the Coalition, which argued we were heading for deficit but that it was both unnecessary and irresponsible.

Since then everyone’s shut up about deficits, including the media. Which is strange because the Government has been spending money like (insert your preferred cliché of profligacy) in the interval.

A fortnight ago at COAG the Commonwealth handed out what it said was an additional $15.1b over five years to the states beyond what it had originally committed. At the time, the Prime Minister assured us that after the handout, the Budget was still in “modest surplus”. Normally I like Kevin Rudd’s use of “modest”. He has learnt well the lesson of John Howard’s disastrous claim that working families had never been better off, and is careful to describe many of his less historic proposals as “modest”. But this time I was suspicious.

In early November, the Mid Year Economic Forecasts had shown the budget surplus had fallen to $5.4b for 2008-09. An additional $15.1b over five years would surely take a chunk out of that, especially when Wayne Swan said it was “frontloaded”. And on Friday the Government produced yet another stimulus package, worth $4.7b over four years, although the bulk of it will be spent in the remainder of this financial year and a lot of it is bringing forward expenditure from out-years to this or next year. There’s also a small business tax break with no net budget cost, and an investment tax break that will cost $1.6b over four years.

And yesterday, as if too much stimulus is barely enough, Marn Ferguson’s Renewable Energy Fund was brought forward, gone from being a six year program commencing in 2009-10 to a two year program commencing right now.

On Friday, Rudd again assured us the budget remained in surplus.

Well, probably it does. It’s hard to tell. It’s pretty clear how much the infrastructure and investment package is new money and how much is being brought forward into this year or next year from the following year (which has not net fiscal effect but makes a difference to each year’s fiscal outcome). It’s the COAG announcement that’s problematic — chockers with 11-figure numbers and boast of grand reforms but virtually no detail about timing or how much is new money from future surpluses. Terry McCrann, racking up his second lucid column this year, complained a couple of weeks ago about the detail of the COAG announcement and wondered whether the budget was still in surplus. He was right, and that question is even more pertinent now.

By my admittedly inept calculations, Friday’s announcement cuts this year’s surplus to below a billion dollars, and takes us slightly into the red in 2009-10, and over a billion into deficit the following year. It’s quite possible that some alternative combination of that applies, but some form of deficit looks almost, even if we assume that the billion dollars’ worth of “decisions taken but not yet announced” in MYEFO included all recent announcements.

All that naturally assumes that revenue and other expenditures are tracking the way Treasury forecast they would back in early November. That’s a fairly heroic assumption at this point. Heroic as in James T Kirk heroic. As the bottom right-hand corner figure shows, the Government has yet to commit ALL of its available surpluses from Forward Estimates, but $2.4b over four years doesn’t go far these days.

Having praised Lindsay Tanner’s “Operation Sunlight” budget transparency reforms last week, Crikey is well placed to reflect that the Government’s failure since MYEFO to keep us informed of the state of the budget doesn’t do much for informed economic debate, or its own credibility. Whether a surplus of $3.2b can be expected in 2011-12 doesn’t much matter — in current circumstances, you may as well pick any number — but how we are tracking in 2008-09 matters quite a bit.

And if the Government has been signally backward in coming forward about its fiscal circumstances, what of the media? The fiscal implications of the stimulus-a-thon have drawn minimal analysis. Even The Australian didn’t bother to wonder what the effect of the infrastructure package was on the budget bottom line, although Michael Stutchbury, always happy to continue his predecessor Alan Wood’s hatred of the ALP, gave the package a serve.

The real problem with the package is that it was massively skewed toward some of our most polluting industries. The Government made much of its investment in coal-carrying rail lines in the Hunter — made via a $580m equity injection to the Commonwealth-owned track owner. This investment will be invaluable in maintaining and increasing Australia’s addiction to one of our most carbon-intensive industries. One estimate, from Greenpeace, suggested the expanded coal-carrying capacity would cancel out a 10% carbon emission reduction target five times over.

The Government also brought forward road expenditures on highway upgrades. We tend to assume intercity highways are primarily used by holidaying motorists but in fact they’re the arteries of the road transport industry and each dollar invested in highway upgrades is a gift to the trucking industry. One of the criteria for this package was that projects be ready to go soon or immediately and projects that are already scheduled are naturally contenders for such consideration. This tends to reinforce the existing bias in transport funding toward road and freight.

To its credit, the Government has invested several hundred million dollars in improving the north-south and east-west rail corridors through more and longer passing loops to help rail maintain — or, more likely, not lose too quickly — its share of the freight task. However, the best part of $1b could’ve yielded bigger economic and environmental benefits if directed toward public transport solutions in cities — though that would’ve taken time to work out.

Maybe it’s end of year lassitude from journalists and commentators, or perhaps we’re getting a little jaded with the stimuli that keep rolling out. But the Government shouldn’t be getting a free pass on this stuff.