Wednesday, March 14, 2012

What a ship of fools. Leigh on the Coalition's hatred of Treasury

When your numbers don't add up, attack Treasury; when your ideas make no economic sense, attack economics

From parliament yesterday. It's worth printing and reading.

Matter of Public Importance – ‘The urgent need for market-based reforms and strict and transparent budgeting’ Andrew Leigh, March 13 2012

"Today’s matter of public importance is on the need for market based reforms and the need for strict and transparent budgeting. I want to start by talking about market based mechanisms in dealing with environmental challenges. This used to be a pretty controversial area, and in fact the first person to raise it was none other than George HW Bush, who suggested that we might deal with environmental challenges by putting a price on the externality. He faced objections, but the objections at that time came from the Left. It was those on the progressive side of politics who took some time to come around.

But, from the very beginning, as you can see in such important documents as the honours thesis of the member for Flinders, the Right was signed on. The Right understood intuitively that this was a good way of harnessing market based mechanisms, that the choice of market based mechanisms would provide a more effective way of dealing with environmental challenges. That view still holds sway among conservatives in many countries. If you go to the United Kingdom, you will find a conservative party committed to the use of market based mechanisms to deal with climate change. If you go across the ditch to New Zealand, you will see the same thing: conservatives who understand that price mechanisms beat direct action. It was true in Australia when those opposite went to the 2007 election promising to put a price on carbon pollution, and it was true until that famous tipping point in Australian politics, the one vote in the coalition party room that tipped the coalition from good economics into populism.

When it comes to water pricing, the coalition rejects the use of water markets. But, of course, it was not always this way. Moves towards water markets were enhanced when the member for Wentworth was the relevant minister under the Howard government and when he was the Leader of the Opposition he supported carbon pricing as the most efficient way of dealing with climate change. But it is not just in the area of market based reforms that this side of the House are the free marketeers. When it comes to listening to economists it is the Gillard government that takes economic advice when it comes to preparing our budget. And when it is pointed out to the Leader of the Opposition that he cannot find a single economist to back his direct action scheme, he attacks Australian economists. When he finds that he cannot find a single Treasury official who is willing to back his election costings, he goes and attacks Treasury...

Let us go through what happens with the coalition’s 2010 election costings. When they went to the last election the coalition used a private accounting firm, WHK Horwath and the member for North Sydney said at the time that the two accountants from that firm had certified ‘in law that our numbers are accurate’. He told ABC Radio in November 2010:

‘If the fifth-biggest accounting firm in Australia signs off on our numbers it is a brave person to start saying there are accounting tricks.’

And he said:

‘I tell you it is audited. This is an audited statement.’

The member for Goldstein strongly vouched for the costings, saying they were ‘as good as you could get anywhere in the country, including in Treasury’. But, in fact, we now know that that document was a one-page report produced two days out from the election and it was the result of a carefully worded agreement between the accountants and the coalition to produce work that would be primarily not of an audit nature. As Peter Martin pointed out in the Sydney Morning Herald last December, that led to two $5,000 fines plus cost orders for the accountants that had prepared these dodgy costings for the coalition. So you would think that, after all of that, the coalition would take a deep breath and would say, ‘Well, clearly, using private accounting firms didn’t work for us last time and we have the $11 billion black hole.’ For a little while it did actually look as though the coalition were going to learn. A bipartisan parliamentary report on the Parliamentary Budget Office backed it in. It was backed by the member for Higgins and Senator Joyce. But it was only when they realised that they had a hole in their costings—a hole that emerges when you are the kind of opposition leader who says yes to every special interest and no to every tax increase—that the coalition decided they had to back away from a parliamentary budget office. So they backed away from having a parliamentary budget office in what I have to say was one of the most extraordinary late night debates in this place that I have been involved in. The members for Goldstein and Mackellar began attacking the institution of Treasury and Treasury secretary Ken Henry, who, as members know, was appointed by Treasurer Costello to that position. The member for Mackellar said:

‘This Parliamentary Budget Office is something that is simply linked to the coattails of Treasury.’

She went on to say:

‘I made the point that Treasury and the head of Treasury had been rewarded for things that they had done to assist the government.’

The member for Goldstein said very boldly of his costings at the last election:

‘There was no black hole. This was a politicised black hole. This was something fabricated with the use of Treasury officials to give the government a political advantage.’

These were the outrageous attacks on a great Australian, one who has served Australian economic policy making extraordinarily well, and on a great government department, one that has done valuable work in producing good economic policy.

When those opposite are faced with an independent Treasury who finds an $11 billion black hole in their costings, they go and attack Treasury. Those opposite are like a rich kid who, when his maths teacher says, ‘No, I think you’ve got an answer to a question wrong here,’ goes to the principal and says, ‘Can we get the maths teacher sacked, please.’ They are all noblesse oblige. But, of course, these days those opposite are probably wishing they had a black hole as small as $11 billion. Their black hole is now $70 billion. That is the equivalent of stopping the pension for two years or stopping Medicare payments for four years.

It is not just I pointing this out. The opposition leader likes to visit various Canberra based businesses, but when he visited CRT Building Supplies he got a little bit more than he bargained for. Steve Bailey, who I would like to point out is not a member of the Greens Party or the Labor Party, heckled Mr Abbott about his $70 billion black hole. He said:

“I think he doesn’t care for the people on low incomes; he cares about people like Gina Rinehart and Clive Palmer. He’s out for the big boys not the little people like us. It’s a media opportunity for him, it’s a stunt with no substance.”

The Leader of the Opposition is happy to use my constituents as a political backdrop for his media stunts. He is happy to go along to local schools and trash Australia without once mentioning that he voted against the new school buildings that he is probably sitting in at the time.

It is Canberrans who would suffer most if the coalition were to win office. The member for North Sydney likes talking about the 12,000 Canberra public servants whom he would make redundant. Originally he liked to say this was from natural attrition, but he has given up that one lately and he is now talking about getting rid of whole departments. The department of climate change is on the chopping block. As for the department of health, the member for North Sydney says there are 5,000 people there and he does not know what they do. There are two answers to that. The first is he could ask the Leader of the Opposition, who was the minister for health when the Howard government was in office and when the department of health also employed about 5,000 public servants. Otherwise he could actually pay some serious policy interest to the things that the department of health are doing. I am waiting for the member for North Sydney to have his Rick Perry moment: ‘I’d like to get rid of three departments—the department of climate change, the department of health and that other one that I can’t quite remember right now.’ But I am sure the member for North Sydney will think of a third department to get rid of.

It is deeply ironic that the member for North Sydney is out there speaking about job security and about the Australian economy. If he is interested in job security he might want to have a good, hard talk to the 12,000 public servants that he intends to make redundant. But frankly they are still $70 billion short. Even after firing those 12,000 public servants they need to find some other way of getting there. The shadow minister for immigration has suggested a novel way of getting there. He has decided that, when he is going to get costings done, rather than go to accounting firms, he will go to catering firms, because it was catering firms that did the opposition’s costings for Nauru. That is an innovative scheme that might well get the opposition there—McDonald’s may well have some interest in costing the opposition’s health policy. It really does reflect much of what those opposite think of budgets. They think that government is an all-you-can-eat: you can just go out there and have it all. You can eat everything; worry about dieting—worry about where the money is going to come from—tomorrow.

We have also seen in recent days a really troubling development: the abandonment of countercyclical fiscal policy by those opposite. Those opposite have now said that they would not have put the Commonwealth budget into debt during a downturn. It is very clear what that would have meant. A no-debt position means that when your revenue write-downs come—let us not forget that two-thirds of the debt that Australia took on during the global financial crisis was revenue write-downs, not stimulus—you are going to pull the government back. Not only are you going to fail to prop up the private sector, you are going to do exactly what the private sector is doing—you are going to follow them down into the downturn. There is a precedent for that: Herbert Hoover during the Great Depression. This is why the Great Depression didn’t last a year or two, but a full decade. Those opposite are the Herbert Hoovers of economic policy. It is no great surprise, really, because they are led by somebody who, in the words of one of his predecessors, John Hewson, is genuinely innumerate. As John Hewson said, ‘He has no interest in economics and no feeling for it.’ Or as another coalition scion, Peter Costello, said when speaking of the Leader of the Opposition: ‘Never one to be held back by the financial consequence of decisions, he had grandiose plans for public expenditure.’ A former cabinet colleague of the Leader of the Opposition said, ‘He’s just spend, spend, spend.’ Another said, ‘He never really understood the meaning of fiscal conservatism.’

Those opposite are constantly out there with their economically illiterate plans, talking down the economy. The Australian economy now enjoys goldplated AAA credit ratings from the three major agencies. When was the last time that happened? It has never happened before. This is the first time in Australia’s history that we have enjoyed a AAA rating from every major ratings agency. So when you hear those opposite speaking about the state of the Australian economy—trash talking the Australian economy and trying to damage consumer confidence—it is important to remember what they say when they are overseas. When the opposition leader leaves this country, he says, ‘Australia has serious bragging rights. Compared to most developed countries our economic circumstances are enviable.’ That is absolutely true. I only wish that they would say when they are back in Australia.

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