Tuesday, March 24, 2015

Why fix the budget when you can dress it up with lipstick? What to look forward to on May 12

Never have I less looked forward to a budget. The one due in seven weeks is going to make me feel dreadful; not because of what it will do, but because of what it won't do.    

Last year's budget (Abbott's and Hockey's first) genuinely attempted to bring spending and income into line. Sure, it gave away revenue by axing the mining and carbon taxes (fulfilling an election promise) but it also wound back the growth in pension payments, froze family payments and indexed fuel excise so it would grow over time.

Its gaping hole was any action on winding back Australia's gargantuan and expanding network of tax concessions, most of which are for superannuation. The tTreasury's most conservative estimate has the concession for contributions to super funds costing $15.5 billion this financial year, climbing to $18 billion over three years. The tax concession for the earnings of funds costs $12 billion and is set to almost double to $22 billion. By way of comparison, Medicare costs $20 billion.

Abbott and Hockey explained away the hole by saying the measures in their first budget shouldn't be seen in isolation. They would be followed by a second package after they had received their tax white paper. It would tackle the benefits paid to high-income Australians through tax concessions in the same way as that the first package had tackled the benefits paid to low-income Australians through payments.

The discussion paper that was meant to kick off the process was dueexpected in December. At the time, The Financial Review outlined its contents and the number of pages – about 200. But Abbott sat on it because he was in political trouble, promising to release it early in the new year. January, February and then most of March passed without any sign of it. Now Hockey says he'll release it on Monday, just after the New South Wales election and three months late...

After the discussion paper was to come months of consultation and submissions ahead of a final paper due at the end of this year. Unless Hockey extends the deadline, the process will have been severely truncated. If he does extend it, the white paper will be released so close to the next election as to make a bold second package impossible.

In any event, the Prime Minister has signalled there will be nothing bold about this year's budget (and by extension next year's budget, which will be just before the election). It will be "almost dull compared to last year". It is "not going to involve anything like the kind of restructuring that we saw last year".

In Labor's last financial year in office, spending exceeded revenue by 5.4 per cent. This year it will exceed it by 13 per cent. The government says it has a plan to get the excess down, but that plan was struck when the iron ore price was $US90 a tonne. It's now closer to $US50. And it was struck when the government thought it could get most of its measures through the Senate. It now knows it can't. Many measures it won't even put up.

So without the ability or the will to genuinely reform the budget this time round, what's it going to do? It is going to put lipstick on it. It's going to dress it up with measures that look good, even if they do harm.

They are the sort of measures Hockey used to complain about on budget night. He would put out a document printed in red ink outlining the tricks Labor had used to make it look as if the budget position was improving when it was actually getting worse.

This year Hockey and Co are investigating selling irreplaceable real estate. They've contracted PricewaterhouseCoopers to investigate selling the parliamentary triangle buildings that house the Treasury and Finance departments as well as the historic East Block and West Block buildings either side of the old Parliament House and the Anzac Park East and West buildings that flank the view of the War Memorial from Lake Burley Griffin.

Once sold, they would be leased back to the departments of Treasury and Finance and whoever needed to use them. For the next four years (as far out as the budget's detailed forecasts go), Hockey's accounts would look good. He would have raised serious money. Beyond that, his successors would be paying out serious rent.

The Howard government sold the purpose-built Foreign Affairs headquarters to the to the Motor Traders' Association super fund for $217 million in 1998. By 2017 it will have paid out $311 million in rent. Foreign Affairs can't move out, and what dressed up the budget nicely in 1998 will cost $20 million or more per year in rent forevermore.

The charter of budget honesty rules allow this sleight of hand for the sale of buildings but not for the sale of corporations, something Hockey is apparently planning to take advantage of.

Only a government that didn't really care about its long-term finances would use such a loophole, only a government that had given up on doing the hard work it said needed to be done.

In The Age and Sydney Morning Herald