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