The first budget black hole was a mere $540 million. That was in 1987 dollars, which is around $1.5 billion these days. It was in John Howard’s tax policy, assembled by his shadow treasurer Jim Carlton and launched during the 1987 election. Paul Keating seized on it and tore Howard apart, because it really was a black hole — Howard admitted it was an error by Carlton. His campaign never recovered.
Ever since, governments in election campaigns have been trying to replicate Keating’s 1987 attack, and failing. Keating himself tried it again the following election and failed — though it didn’t stop him trying every election after that. It has become yet another pointless ritual of politics, like governments issuing demands about what opposition leaders “must do” the afternoon before a budget reply speech. The closest any government got was the Howard government after the 1996 election, when it confected the claim of an $8 billion “Beazley black hole” about the budget Labor had left the Coalition. It’s true that the Keating government’s budget forecasts were decidedly optimistic — but both sides were aware of that and it suited both Howard and Keating in the lead-up to the election to ignore the fiscal reality.
That “Beazley black hole” had been put together by the Department of Finance at the new government’s request, and as a bureaucrat at the time I got to see a lot of the stuff Finance had put on the list; some of it was an outright lie, including large-scale spending that Labor had considered but rejected while in government. To this day, there are senior DOFA and ex-DOFA bureaucrats walking around Canberra who should be deeply ashamed of their role in that scam.
The Howard government also tilted the rules further in favour of governments with the Charter of Budget Honesty, under which oppositions could — were they so minded to — submit their policies for costing to Treasury and Finance in the lead-up to an election. In fact, this merely exposed oppositions to more criticism — a fact implicitly acknowledged by the Coalition when it declined to bother with the very system it had created when it was in opposition. Instead, we had the absurdity of Joe Hockey using an accounting firm — later fined — to “audit” his numbers, and Treasury and Finance ripping them apart after the 2010 election, which didn’t help Tony Abbott’s campaign to secure crossbench support.
And each election, the claims about the size of the black holes have steadily grown, first into the billions, then into the tens of billions, generally to the yawning indifference of voters. But while governments have failed to recreate Keating’s 1987 demolition, and oppositions have occasionally tripped up, yesterday Scott Morrison and Mathias Cormann achieved the unusual feat of performing the ritualistic unveiling of the budget black hole so badly they damaged their own credibility in the process.
The chief problem was that they’d done exactly what Finance did back in 1996 — shoehorn in something that could be vaguely linked to Labor but wasn’t actually a commitment. Thus, a relatively modest Labor commitment on foreign aid turned into a $20 billion whopper that proceeded to thrash about in the Morrison-Cormann media conference and smash it to pieces, especially given the Coalition has exactly the same nebulous commitment to increased aid funding as Labor. Along with other extrapolations, double-counting and general half-arsery, over the course of a short period of time in that media conference, the black hole went from a claim of $67 billion — a new record for black holes — down to a claim of $32 billion, and Morrison was reduced to saying not so much that there was a black hole but that Labor needed to clarify its spending commitments.
Fairfax’s James Massola summed up a quarter of a century of politicians trying to out-black hole their opponents in front of increasingly incredulous journalists when he asked “is there a black hole in your black hole?”. Of course, a black hole inside a black hole would actually make the original black hole even worse, but you get the point. It left what was intended to be a day devoted to attacking Bill Shorten’s fiscal credibility as a smoking ruin for the government.
And yet there’s a grim reality beneath all this: under this government, spending has ballooned from 24.1% of GDP in Labor’s last year to 25.8% of GDP this coming financial year. Net debt will grow from 10% of GDP in 2012-13 to 18.9% in 2016-17. Even Scott Morrison admits he has a spending problem. But neither side is talking seriously about significantly altering our current fiscal trajectory. Like 1996, for all the talk of black holes, it suits both sides to ignore the budget reality.
I believe there is a relatively simple solution to the current Australian budgetary economic dilemma. And that’s the suspension or abolition of the GST and the introduction of both a business value added tax [BVAT] and turnover tax. Set at an appropriate level it could allow a government to achieve reasonable incentives such as reducing corporate tax.
The potential advantages:
– Currently the feds collect approximately $50+ billion in GST and growing at 4+% per annum. All things being equal this gives consumers $50 billion extra buying power.
The BVAT should be cascading, non tax deductible and not able to be passed on. Banks have already agreed to this latter principle to fund increased oversight.
Similarly the turnover tax which could be levelled at the end point but have similar attributes.
– There would be no need for consumer compensation. A BVAT & TT would not need exceptions as the current GST operates. It’s a business Tax. A BVAT justified by businesses constant call to increase the GST [It must be a tax they like] and because of the expected stimulus to demand. An annual stimulus. It can be further justified because it is demand that’s flagging not supply. A GST is dampener on demand.
– It can potentially put downward pressure on wages while at the same time have a positive impact on purchasing power. It’s a great complement to low interest rates.
– business gain through increased demand.
– most businesses already have reporting responsibilities for GST. A BVAT change should have minimal impact.
– it has the added advantage of picking up those nasty corporate tax evaders and multi- nationals who also like avoiding tax responsibilities.
Since 2000 it has been Australian consumers who have held the economy together in tough times eg SARS outbreak, etc. They will rise to the occasion again.
I do wish people would stop talking about government spending as being something to be feared. Government spending when the money is given to the people to be spent is the engine to keep the economy operating. The difficulty is the increase in the money supply caused by governments spending more than they collect. If governments stopped borrowing the increase in the money supply and simply printed it then there would be no debt created. If the government now invested those extra dollars in productive assets like infrastructure then it would not cause inflation. The government can do the same to get rid of government debt. Print money, pay off the debt, and spend the money on infrastructure. To reduce inflation even further is to spend money on infrastructure where we have asset inflation. Even better is to give the newly printed money equally to all Australians and require them to invest the money in infrastructure. Give them a few choices – like roads, education, hospitals, schools etc.
But doesn’t printing more money reduce the value of that money?
That is, you have more dollars Aus, but it is value the same in USD?
There was plenty of quantitative easing done by the ECB and the US Fed reserve over the last 6 or so years, but there are pretty good reasons it’s treated as a ‘last resort’. For a start, it significantly favours those who already own significant assets, so to avoid excessive increases in wealth inequality needs to be done in tandem with changes in distributive and taxation policies that are often politically very difficult to achieve. Maintaining government spending through borrowing (where repayments can be at least partially balanced against tax receipts) rather than printing is a way of ensuring that money supply isn’t just increased without consideration of a nation’s ability to produce the goods and services that can be bought with it.
“So where the bloody hell are ya Black Hole?”
… Maybe they just go it mixed up with the one Mathias burned with his doble toro?
And are you sure this happened?
Our Curry or Maul’s “analysis” didn’t feature this self-inflicted wound at all – it had 5 cases of “(Labors’) Day from Hell” – mind you there was the waft of red herrings, rather than brimstone, about those “reports”?
Must be some kind of record..the hapless Morriscums scare campaign couldn’t survive it’s initial presser..it’s a bit tougher when you can’t just to refuse to comment..the god bothering tosser is in well over his head..