Saturday, March 08, 2008

The Treasury tells the truth about its past masters, and the Budgets they forced it to write

Strewth! Embargoed until this morning and all.

The Commonwealth Treasury has launched an assault on the previous government’s economic priorities and on the growing size of the public service.

The publication of the Treasury’s assessment of the previous government’s spending record, available this morning on the Treasury’s website, follows a speech by the Treasury Secretary Ken Henry this week that attacked both the previous government’s policy of “aspirational nationalism” and the thinking behind its $10 billion water plan.

The Treasury stresses in the document released this morning that the views expressed in it are those of the two authors, Kirsty Laurie and Jason McDonald from the Treasury’s budget division, and not necessarily those of the department itself...

The release comes as the Finance Minister Lindsay Tanner confirms in an interview in this morning’s Canberra Times that entire government programs, including tax concessions, are facing his Razor Gang’s axe.

The Treasury report says that in the past decade of Coalition government inflation-adjusted spending jumped from $175 billion to $261 billion, and is on track to hit $282 billion unless wound back.

It says real government spending grew faster between 2004-05 and 2007-08 than in any four-year period since the 1990’s recession.

It says the Howard government’s surge in spending was unusual, along with a surge in spending by the Whitlam government in the 1970s, in taking place at a time when the economy is not in recession.

The economic cost of the surge was much higher than it would have been at another time because the economy was “operating at close to its limits of capacity” and resources had to be redirected to the government from other parts of the economy.

Employment in the public service had swelled 29 per cent since 1998 and was likely to be “reducing the supply of highly educated labour to the rest of the economy”.

This is because the proportion of public servants with at least a bachelor’s degree was almost twice that of the private sector – 40 per cent, compared with 23 per cent.

The number of new decisions announced in each budget had doubled over the Howard decade with most of the new decisions involving relatively small parcels of money each worth less than $100 million over the forward estimates.

However the number of spending decisions worth more than $1 billion had climbed from one in 1997-98 to nine in 2007-08.

By contrast savings measures all but vanished over the life of the Coalition government. The Treasury officers say around one third of all the measures in the 1997-98 budget had a savings component. By the end of the Howard government savings measures averaged 1.5 per cent of total measures.

Tax expenditures, otherwise known as tax breaks or tax concessions soared during the life of the Coalition government. The Treasury says they jumped 51 per cent in real terms since 1997-98, climbing from $33 billion a year to $50 billion and are on track to climb higher still. It warns that this spending has “similar impacts on the economy to conventional spending.”

Notwithstanding the recent economic boom, which has cut spending on unemployment benefits, assistance to the aged and families with dependent children had “grown strongly”.

Since the onset of the commodities boom in 2003 government spending on industry assistance had climbed by 6 per cent a year.

The Treasury says since 204 the Coalition gained an extra $334 billion in unexpected revenue. It gave away $314 billion of it in new spending or tax cuts.

A perspective on trends in Australian Government spending, Economic Roundup, Commonwealth Treasury, Saturday, 8 March 2008


Anonymous said...

Good on the Commonwealth Treasury for being so honest .... especially as this report appeared before the Parliament passed any Truth-In-Public-Administration bill.

Graham Bell

Anonymous said...

If they were such an honest mob, why wait until now to say anything? Gutless, I reckon.


Letters said...

Letters, March 18, 2007

Wrong arena for criticism

JOHN MOBBS (Letters, March12) is right when he says that, as a matter of principle, public servants shouldn't criticise governments.

But he's wrong when he says that, if they disagree strongly with government policies, "resignation is really the only answer".

The alternative is to simply do the job they were appointed to do (advising on and implementing government policies, no matter what they personally think of them) and remain apolitical.

That doesn't stop an individual public servant from criticising government policy; but he or she should do it as a private individual, and not in their public service role, or in the publications of their department.

That's why it was inappropriate that, as reported by your Economics Editor, Peter Martin ("Treasury blasts Howard spending", March 8, p1), the Treasury recently allowed the authors of a Treasury document (obviously prepared by them as public servants) to according to Martin criticise a government in that publication.

It was even worse that the Treasury endeavoured to distance itself from the criticism by saying that "the views expressed in the document are those of [the authors] and not necessarily those of the department itself".

Most readers don't distinguish between the Treasury and Treasury officers, and a disclaimer like that is a back-door way of a department that's supposed to be apolitical making its views known on something that's obviously highly political.

And that's to be condemned.

R. S. Gilbert, Turner

Anonymous said...

Hi, here is a parody for your reading leisure.


Wayne Swann (FOE)

As a FOE (Feudal Options Executive) I would like state our party’s position on housing affordability in Australia (described as being amongst the least affordable in the world).

Firstly, Feudal Options party (FO) intends to mirror many of the current Liberal and Labour party policies. The only difference will be that we will be explicit with our ulterior motives.

I believe the Australian public is ready for this. The public is basically honest and intelligent enough to know the deceits of the current political parties. The public generally dislikes dishonest politicians but still has to vote for them. FO is an honest alternative.

At the next election we expect support from voters looking for upfront honesty while still retaining corrupt policies of the other two parties.

In terms of housing affordability, we believe keeping the status quo by making housing more affordable to investor, less affordable to home buyers.

The ulterior motive for this must be obvious. Investors need renters. There is no point in having a tax policy that encourages home ownership at the expense of investors.

Hats off to Treasury, in this respect. Although RBA submission: “Productivity Commission Inquiry on First Home Ownership - 2003” clearly identified the main cause of housing unaffordability – all political parties have dodged the main point of the submission.

Congratulations also to commercial media for showing remarkable skill in spruiking rent increases and avoiding any contribution that might bring fairness into the situation.

As pointed out by the RBA’s submission (point 9 of Summary): ‘It is our view that the main impetus to the continued increase in house prices at present is from . . . unusually strong desire by existing property owners for further exposure to residential property . . ’

In other words – investors goaded by tax breaks.

The most obvious way to further encourage this is by rigging tax rules so that residential property investors (only) can claim expenses on debt. FO will not change the current tax rulings as there is already a massive advantage given investors (namely LOAN INTEREST deductions on property debt - in the order of $450000 credit & deductions on a new investment property assuming $300000 debt).

Further pressure will be put on property prices by increasing the number of people trying to rent existing properties.

Again, FO need change nothing as both Liberal and Labor have embraced the “GO FOR GROWTH” format for creating pressure cooker conditions in the community. FO, in line with both Labor and Liberal party believe that IG2, called by some a delusional feudal technique for pauperising rental milch cows, is the way to get ahead (for residential property investors only).

Long term, FO wishes to further erode the position of all home owners (HO) in favour of investors. This will be achieved by increasing the cost of services such as medical treatment and education to such a degree that current HO will need to take a second mortgage or equity loan to cover costs.

Feudal Options will ensure that the investors (only) will be protected by substantial rebates, deductions and tax credits*.

In this way HO will be need to sell the family home down the toilet to subsidise their health and education expenses. Feudal Options envision that within about 50 years about 20 % of Australians (investors only) will own property.

Any suggestions on how to make the tax system more skewwhiff to advantage investors are welcome at Feudal Options party.

Have a nice day

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