This wasn’t supposed to happen anymore...

Joe Hockey has followed a classic playbook since coming to office – find a budget black hole, blame it on your predecessors, then use this revelation to justify implementing an agenda more aggressive than you’d let on before the election. But this strategy wasn’t supposed to be possible after the Howard government passed the Charter of Budget Honesty into law.

Under the charter, we no longer have to compare the new government’s numbers to the old government’s numbers and work out for ourselves why they don’t line up. Instead, the heads of the Treasury and the Finance Department are required to put out their own set of numbers, the Pre-Election Fiscal Outlook (PEFO), during the election campaign. This gives a neutral baseline against which we can assess the new government’s figures. PEFO is the only set of budget forecasts that truly belong to the bureaucrats – all other documents (like the Budget) are issued by ministers.

The PEFO last year didn’t contain a budget black hole. It didn’t depict a budget emergency. In fact, the outlook in PEFO was remarkably close to the figures in the economic statement issued by Chris Bowen and Penny Wong just before the election was called. The public servants in PEFO projected the budget balance out for a decade. They found that the budget was on track, before the election, to return to surplus in 2016-17 and keep improving from there, eventually hitting a surplus of about 1 per cent of GDP by 2023 with net debt approaching zero.

Some commentators have quibbled with these projections, suggesting that they’re implausible because they adopt the previous government’s policy of restricting real spending growth to 2 per cent per year. This policy may well have been implausible, but PEFO didn’t hinge on it. Instead, the public servants also showed what would happen to the budget if spending grew at its expected pace (instead of being restricted to 2 per cent real growth) and revenue was allowed to grow. The result for the budget bottom line is much the same as under the previous government’s policies.

Both of the scenarios – the first with the previous government’s 2 per cent spending growth cap and the second that reflects the underlying trend in spending and taxing – factor in big ticket items including DisabilityCare Australia (aka the NDIS) and the National Plan for School Improvement (aka Gonski).

Despite the charter and the neutral numbers in PEFO, Joe Hockey still played the budget black hole card, just as Peter Costello (in 1996), Paul Keating (in 1983) and John Howard (in 1975) had done before him. The new government’s mini-budget (MYEFO) contained dramatically bigger deficits than the bureaucrats’ PEFO projections, with no surpluses in sight. The worsened outlook was partly due to policy decisions taken by the new government (like scrapping the carbon and mining taxes and giving a large grant to the RBA), partly due to a change in the assumptions used for projections beyond the first two years of the forward estimates, and partly due to a slightly more pessimistic economic outlook. Hockey’s first budget confirms this budget outlook, with budget deficits for years to come.

For now, this sea of red ink is being used as the justification for deep cuts in spending and a few unpopular revenue-raising measures. But don’t be surprised if, in a couple of years’ time, the budget outlook is a lot rosier. That’s the final step in the budget black hole strategy – show that you’ve brought home the bacon and balanced the books despite your predecessors’ profligacy.

Excerpt from ACTU Budget Briefing, May 2014 

Queensland Teachers' Journal, Vol 119 No 5, 18 July 2014, pp10-11