tag:theconversation.com,2011:/africa/topics/parliamentary-budget-office-13749/articlesParliamentary Budget Office – The Conversation2023-05-18T03:38:30Ztag:theconversation.com,2011:article/2059212023-05-18T03:38:30Z2023-05-18T03:38:30ZPolitics with Michelle Grattan: Greens’ Max Chandler-Mather on the housing fund, rent freezes and migration<figure><img src="https://images.theconversation.com/files/526940/original/file-20230518-15-oi4z5f.jpg?ixlib=rb-1.1.0&rect=24%2C0%2C8218%2C5487&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Mick Tsikas/AAP</span></span></figcaption></figure><p>The government’s planned Housing Australia Future Fund has hit a roadblock. </p>
<p>Legislation for the $10 billion fund – the returns on which would be used to build social and affordable housing – is being blocked by an unusual alliance of the Coalition and the Greens. </p>
<p>Max Chandler-Mather, who won the seat of Griffith in Brisbane from Labor’s Terri Butler, has been under personal attack by the government. Labor leader in the Senate Penny Wong accused him of ego-stroking, and the prime minister suggested he was hypocritical for wanting more social housing while opposing a developments in his electorate.</p>
<p>Why is a party that has championed more social and affordable housing opposing an initiative to get more housing into the market? </p>
<p>In this podcast, Chandler-Mather says: “Our criticisms are twofold. The first is that Labor’s proposal as it stand, doesn’t guarantee a single cent for public and affordable housing and it does nothing for renters. Now Labor’s proposal is to get $10 billion of public money and rather than invest it directly in housing, they want to put it on the stock market via the Future Fund set up by Peter Costello, and only spend some of the returns on housing. Now the problem is that last year the Future Fund lost 1.2%, so the fund would have lost $120 million last year.</p>
<p>"You would not fund schools or hospitals via an uncertain gamble on the stock market and we’re much better off investing money directly in building public and affordable housing every year.”</p>
<p>The Greens are also pushing hard for a two-year national rent freeze, with a 2% cap set on increases after. They take inspiration from Scotland, which froze rent increases and Spain, which set a 3% cap. They don’t believe the criticism that rent freezes or caps will have a negative impact on the housing crisis.</p>
<p>“There is actually very little evidence to suggest that capping rent increases or controlling rents affects the supply […] the other broader point to make is that some commentators often, I would argue from the property developer lobby, will say, well, if we keep rents too low, then we won’t build enough houses. And to which I say, even if that were true, it’s not sustainable to have a housing system that will only build homes where rents start going up.</p>
<p>"That relies on having people having to suffer economic pain for us to get homes on the ground. And we know from around the world there’s a better way to do it.”</p>
<p>How would the Greens’ ambitious housing policy be paid for?</p>
<p>“There is easily enough money in the federal budget. One of the points we’ve made is that the biggest line item in this year’s federal budget, for instance, for housing is the tax concessions for property investors by negative gearing.</p>
<p>"The Parliamentary Budget Office found that those tax concessions to property investors are going to, [at] the end of the next ten years, cost the government over $20 billion a year.”</p>
<p>Chandler-Mather doesn’t buy into the argument from the Coalition that the projected 1.5 million net migration intake over the next five years will negatively affect the housing crisis, and believes it is sustainable.</p>
<p>“Migration has always made this country.</p>
<p>"I speak to a lot of people in my line of work, people in small businesses, aged care facilities or schools or all sorts of areas that need skilled labour, that say that there’s a shortage in Australia at the moment.</p>
<p>"It makes sense that we invite people in this country to set up their lives here.”</p>
<p>“But really, as always, in Australia, often it’s not a question of enough resources, it’s a question of how those resources are distributed.</p>
<p>"We could be much better fairly taxing large corporations in this country and using that wealth to build the public infrastructure, transport and housing that we need.</p>
<p>"I think often when the migration debate appears, it often distracts, I think, from the far more important debate, which is how we distribute resources daily in this country.”</p><img src="https://counter.theconversation.com/content/205921/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In this podcast, @michellegrattan and the Greens spokesperson on housing and homelessness, @MChandlerMather, discuss the $10b housing fund, rent-freezes, and net migrationMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1871492022-07-20T20:09:36Z2022-07-20T20:09:36ZElection promises should be costed before polling day, otherwise it’s too late<p>Wouldn’t you know it? Last Thursday the Parliamentary Budget Office released more than 1,000 pages of <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Budget_Office/General_elections/Next_general_election/2022_Election_commitments_report">costings</a>, for promises in the election we just had.</p>
<p>They came in <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Budget_Office/General_elections/Next_general_election/2022_Election_commitments_report_downloads">16 parts</a>, each separately downloadable, along with a video message, charts and tables, explanations, and summaries.</p>
<p>It was a lot of work, but it was too late to have an impact. We’d already voted.</p>
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<p>The report was covered briefly by the <a href="https://www.canberratimes.com.au/story/7819695/costs-of-party-election-promises-revealed/">Canberra Times</a>, a couple of regional papers, and online site <a href="https://www.crikey.com.au/2022/07/14/costs-of-party-election-promises-revealed/">Crikey</a>. It garnered close to zero attention. </p>
<p>In its wake, the shadow treasurer Angus Taylor issued a <a href="https://www.angustaylor.com.au/media/media-releases/independent-costings-show-budget-worse-under-labor">media release</a> attacking Labor for increasing the projected budget deficit. </p>
<p>But that too was old news. During the campaign, Labor had <a href="https://www.theguardian.com/australia-news/2022/may/19/labor-defends-74bn-increase-in-deficit-to-fund-election-promises">said</a> that’s what it would do.</p>
<p>The ratio of attention paid to the number of pages produced was dismal.</p>
<h2>The letter of the law</h2>
<p>This isn’t the fault of the Parliamentary Budget Office. It is required by law to release the report 30 days after the election. It doesn’t have the power to compel the parties to submit lists of their policies for analysis until <a href="https://cdn.theconversation.com/static_files/files/2196/PBO_Act_post-election_reports.pdf">5pm on election eve</a>.</p>
<p>Getting even that power was a close-run thing. Treasurer Wayne Swan added the requirement to the legislation in a 2013 amendment. </p>
<p>Trouble is, it is hard to discern from the public record why he did it. The <a href="https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r4996">explanatory memorandum and speeches</a> assert it will be good for transparency and accountability but do not explain how. </p>
<p>Definitionally, to the extent there is more detailed information, there is greater transparency. But if the information is delivered after people have voted, it’s worth asking how it could improve accountability. </p>
<h2>Data should be useful</h2>
<p>It can’t be taken for granted that more data equals more accountability. Data needs to be used for something – to spark debate, or inform votes.</p>
<p>NSW had a Parliamentary Budget Office before the Commonwealth, which means the amendment might have been based on a NSW <a href="https://legislation.nsw.gov.au/view/html/inforce/current/act-2010-083">requirement</a> for major parties to give the NSW office a list of their policies. </p>
<p>But the difference is that in NSW the report is published five days before the election. There’s a chance it can swing votes. </p>
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Read more:
<a href="https://theconversation.com/elections-used-to-be-about-costings-heres-what-changed-183095">Elections used to be about costings. Here's what changed</a>
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<p>Publishing it after the election, as the Commonwealth office does, means it is almost guaranteed to be ignored. </p>
<p>Does anyone really care what the costs were for the party that lost? Or those for the Greens or even the Member for Indi, who wasn’t required to take part but in 2022 did so voluntarily?</p>
<p>The information about the party that won might be useful, but it will soon be overtaken by the October budget which will provide updated costings.</p>
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<p>Not that there is anything wrong with the <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Budget_Office/General_elections/Next_general_election/2022_Election_commitments_report_downloads">PBO report</a>. It is comprehensive, detailed, and has excellent methodology. </p>
<p>It goes beyond the numbers provided by the parties and includes discussion of measures that affect the government’s balance sheet but not the budget balance. But it’s at the wrong time. </p>
<p>It is far from the only long and complicated report with almost no impact. And if all that mattered was the direct cost of producing it, it wouldn’t much matter.</p>
<p>But there’s an opportunity cost: the other things the PBO staff weren’t doing while they were working long hours producing those 1,000-plus belated pages.</p>
<h2>Before the election would be useful</h2>
<p>The PBO produces research reports, budget explainers, chart packs and many other highly useful information pieces. Particularly notable was a timely and relevant series of publications on the budget impact of <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Budget_Office/COVID-19_publications">COVID-19</a>. </p>
<p>Somewhere in Parliament House there’s an empty bookshelf full of unwritten reports that weren’t produced because of the time the PBO spent on reports like this one. </p>
<p>If the PBO published a report on promises before the election – accepting likely gaps due to time pressures or late promises - it could actually inform voters.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/costing-the-promises-what-is-a-parliamentary-budget-office-3061">Costing the promises: what is a Parliamentary Budget Office?</a>
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<p>There is however a major barrier in the legislation. Whereas in normal times the PBO has to deal confidentially with costings requests, if a request is submitted during a campaign, the PBO is required to make policy and its costing public.</p>
<p>No sensible party is going to take the risk of submitting a policy, having it made public, and then finding out it is unaffordable. </p>
<p>The only policies anyone submits to the PBO in the caretaker period after an election is called are </p>
<ul>
<li><p>those from minor parties – they don’t mind if their policies get negative publicity for being expensive, they are grateful if anyone notices them at all</p></li>
<li><p>policies where the costs are predictable or known</p></li>
</ul>
<p>Changing this, and requiring the PBO to release summaries of the budget impact of promises (say) five days before the vote (as happens in NSW) would make the effort it puts in worthwhile.</p>
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<p><em>Stephen Bartos was NSW Parliamentary Budget Officer for the 2015 and 2019 elections.</em></p><img src="https://counter.theconversation.com/content/187149/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Bartos was NSW Parliamentary Budget Officer for the 2015 and 2019 elections. He has written for Crikey and The Mandarin.</span></em></p>The legislation doesn’t allow the Parliamentary Budget Office to obtain information from parties until the day before the poll.Stephen Bartos, Professor of Economics, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1845592022-06-16T01:27:03Z2022-06-16T01:27:03ZThe teal independents want to hold government to account. That starts with high-quality information<p>The election of a record number of independents to the House of Representatives will undoubtedly increase pressure on parliament to change how it operates. Already the newly elected independent member for Goldstein, Zoe Daniel, has <a href="https://www.afr.com/politics/federal/independents-could-bring-end-to-oversight-captured-by-bureaucracy-20220527-p5ap13">called</a> for more resources for two key institutions, the Parliamentary Budget Office (PBO) and the Parliamentary Library.</p>
<p>The younger of the two, the PBO, was <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/About_the_PBO">created</a> in 2012 to provide “independent and non-partisan analysis of the budget cycle, fiscal policy and the financial implications of proposals”. In practice, it focuses heavily on the last of those tasks – assessing the financial implications of new plans. And it won’t have escaped the independents’ attention that its findings are rarely out of step with the views of Treasury.</p>
<p>What this means, says Daniel, is that “backbenchers of all shades struggle to get the quality of information and objective advice they need to make decisions based on their merits and on the evidence”. She wants to see a broader, US-style body producing forecasts and other economic research independent of Treasury and the government.</p>
<p>This isn’t just a federal problem. Australia’s two other PBOs – in Victoria and New South Wales – also have a much narrower focus than their overseas counterparts.</p>
<p>Federally, two of three items on the PBO’s “<a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/About_the_PBO">about</a>” page concern costings (the first explicitly; the second via a post-election compilation of election commitments) and the third relates to public education. In Victoria, <a href="https://www.parliament.vic.gov.au/images/stories/committees/paec/Inquiry_into_the_Parliamentary_Budget_Officer_/Report/PAEC_59-11_Inquiry_into_Parliamentary_Budget_Officer.pdf">according</a> to a parliamentary committee, “policy costings are a key legislative function of the office” despite being “not widespread” in other OECD countries.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/were-about-to-have-australias-most-diverse-parliament-yet-but-theres-still-a-long-way-to-go-183620">We're about to have Australia's most diverse parliament yet – but there's still a long way to go</a>
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<p>The NSW PBO is even more tightly focused: parliament’s website <a href="https://www.parliament.nsw.gov.au/pbo/Pages/Parliamentary-Budget-Office.aspx">describes</a> its work as providing “costings of election policies in the lead-up to NSW general elections”. Reflecting successive NSW governments’ belief that costings only matter before elections, it operates only one year in four. (The NSW system’s pluses and minuses are discussed in the PBO’s <a href="https://www.parliament.nsw.gov.au/pbo/Documents/PBOdocumentlibrary/Post-election%20Report%20-%20Final.pdf">2015 post-election report</a>.)</p>
<h2>Best practice?</h2>
<p>Many of the PBOs’ counterparts overseas have much broader mandates and more influence on public policy. The most important by far, as Daniel implies, is the US <a href="https://www.cbo.gov/">Congressional Budget Office</a>, whose reports and advice to Congress have had a major impact on budgetary policy in the United States. The CBO produces economic forecasts, research papers and fiscal analysis across all <a href="https://www.cbo.gov/topics">areas of government</a>.</p>
<p>The Netherlands has an even older institution, the Bureau for Economic Policy Analysis. Dating back to 1945, its <a href="https://www.jvi.org/special-events/2019/the-role-of-independent-fiscal-institutions-in-fiscal-frameworks-the-dutch-case.html">role</a> takes in budget projections and forecasting. Across the North Sea in Britain, the independent <a href="https://obr.uk/about-the-obr/what-we-do/#:%7E:text=The%20Office%20for%20Budget%20Responsibility,fiscal%20watchdogs%20around%20the%20world.">Office for Budget Responsibility</a> prepares the economic forecasts that accompany the government’s budget, evaluates the government’s performance against fiscal targets, analyses fiscal sustainability and risks, and – yes – provides costings of tax and welfare measures.</p>
<p>The most striking contrast is with the Canadian PBO, which had a habit of criticising government, especially when led by the independently minded economist <a href="https://www.theglobeandmail.com/report-on-business/careers/careers-leadership/kevin-page-bean-counter-with-a-backbone/article595848/">Kevin Page</a>. That came at some peril – the government slashed its budget and <a href="https://www.theglobeandmail.com/news/politics/kevin-page-slams-liberal-governments-proposed-changes-to-pbo/article34686195/">changed</a> its reporting lines – but the body was always supported by parliament.</p>
<p>Australia’s federal PBO has a narrow focus primarily because the public service convinced parliament to keep it that way. Treasury resisted any notion that another body should have a role in economic forecasting, and so the legislation expressly prohibits the PBO from preparing economic projections or budget estimates.</p>
<p>The Business Council of Australia was an early advocate for a more powerful PBO. In its <a href="https://d3n8a8pro7vhmx.cloudfront.net/bca/pages/3205/attachments/original/1531289994/bca_budget_submission_2011%E2%80%9312_final_14-2-2011.pdf?1531289994">2011–12 budget submission</a>, based on a research report I wrote that included a <a href="https://www.parliament.nsw.gov.au/ladocs/submissions/49104/Sub%2013%20Stephen%20Bartos.pdf">survey</a> of international practice, it argued unsuccessfully for a broader remit.</p>
<p>Since then, the PBO has largely been captured by the bureaucracy. Headed by a career public servant, it is part of the “official family”. Its research and statements don’t come even close to challenging official orthodoxies.</p>
<p>If parliament wants a more independent federal PBO it has power to act. The PBO reports to the <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Public_Accounts_and_Audit">Joint Committee of Public Accounts and Audit</a>, which also approves its work plan. The JCPAA has traditionally been a staunch defender of the legislature’s right to question ministers and public servants. But it has retreated from that position as parliament has become more polarised. The arrival of a record number of independents could reverse the trend and strengthen parliament’s role.</p>
<h2>And the Parliamentary Library?</h2>
<p>Judged by its independence from government, the Parliamentary Library is a much better performer. <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/About_the_Parliamentary_Library">Established in 1901</a>, it has been part of the Commonwealth’s institutional furniture from the first parliament. Its long history of rigour and independence gives it a solid basis on which to keep offering MPs information that doesn’t necessarily follow the government line.</p>
<p>The library’s record is a good illustration of what is known as path dependence: the way an institution is established and works in its early days has a huge influence on how it continues to operate. Having set out on a path of impartiality and rigour, the library has maintained it. But that doesn’t mean it would knock back that extra funding Daniel has called for.</p><img src="https://counter.theconversation.com/content/184559/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Bartos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Parliamentary Library would certainly benefit from more funding, but the Parliamentary Budget Office urgently needs a wider brief and greater independenceStephen Bartos, Professor of Economics, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1242732019-09-27T03:26:41Z2019-09-27T03:26:41ZThe dirty secret at the heart of the projected budget surplus: much higher tax bills<figure><img src="https://images.theconversation.com/files/294477/original/file-20190926-51405-19omk2k.jpg?ixlib=rb-1.1.0&rect=94%2C139%2C2768%2C1372&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bill shocks are the flipside of a surplus built on higher tax collections and tighter access to support payments.</span> <span class="attribution"><span class="source">Shutterstcok</span></span></figcaption></figure><p>The budget is bouncing out of deficit and is set to stay in surplus for the decade to come.</p>
<p>That’s what the <a href="https://budget.gov.au/2019-20/content/bp1/download/bp1_bs3.pdf">April budget</a> and the final <a href="https://theconversation.com/the-big-budget-question-is-why-the-surplus-wasnt-big-123689">budget outcome for 2018-19</a> tell us, and Thursday’s report from the Parliamentary
Budget Office doesn’t say any different.</p>
<p>It doesn’t have much choice. The Parliamentary Budget Office is required to take the government’s surplus and deficit projections for the next four years as given, and to take its economic forecasts and tax and spending announcments for the next ten years as given, whether realistic or not.</p>
<p>What it is allowed to do, and does once a year in a publication entitled <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Research_reports/Medium-term_fiscal_projections">medium-term fiscal projections</a>, is to set out the implications of those projections.</p>
<p>Those implications, spelled out on Thursday, show the projected budget surplus to be so fragile as to be unrealistic, except the parts that rely on much higher personal income tax collections. </p>
<p>That’s right: much higher income tax collections per person, even after taking into account the coming decade of legislated tax cuts.</p>
<h2>Middle earners hit hardest</h2>
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<p>But it won’t be higher for all of us. </p>
<p>The middle fifth of earners will pay far more of their income in tax in ten years’ time under the government’s projections, according to the PBO’s calculations. Instead of paying 14.9% of their income in tax, by 2028-29 they will pay 18.8%.</p>
<p>That’s after taking into account the long-term tax cuts the government pushed through parliament in May and went to the election on. </p>
<p>Without those legislated tax cuts, they would have been paying an extra 6.3% of their income in tax. With the legislated cuts (and others pencilled in by the PBO to keep the government’s tax take <a href="https://theconversation.com/election-tip-23-9-is-a-meaningless-figure-ignore-the-tax-to-gdp-ratio-115432">within its promised ceiling</a>) they will be paying an extra 3.9%.</p>
<p>Put another way, the government’s tax cuts will undo some of the damage caused by bracket creep as more of each pay packet climbs into higher brackets, but not most of it.</p>
<p>It’s the same for pattern for the second-lowest fifth of earners. They will move from paying 5.3% of their income in tax to 9.9%, a near doubling, which is taken is taken into account in the surplus projections. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/those-future-tax-cut-promises-theyre-nowhere-near-as-big-as-youd-think-114912">Those future tax cut promises... they're nowhere near as big as you'd think</a>
</strong>
</em>
</p>
<hr>
<p>The second-highest fifth will move from paying 22% of their income in tax to 23.4%, even after the tax cuts. The bottom fifth, who don’t pay much tax, will move from paying 0.6% to 1.2%.</p>
<h2>Highest earners escape</h2>
<p>But workers in the top fifth, which at the moment is workers earning above A$90,000, won’t pay a cent more, at least not on average. </p>
<p>The government’s projections, as spelled out by the PBO, have them paying less of their income ten years from today than they do today. </p>
<p>Put another way, they are the only fifth of the population that won’t be expected to wear pain to keep the budget surplus.</p>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/294485/original/file-20190927-51414-8yfkvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/294485/original/file-20190927-51414-8yfkvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/294485/original/file-20190927-51414-8yfkvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=334&fit=crop&dpr=1 600w, https://images.theconversation.com/files/294485/original/file-20190927-51414-8yfkvf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=334&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/294485/original/file-20190927-51414-8yfkvf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=334&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/294485/original/file-20190927-51414-8yfkvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=420&fit=crop&dpr=1 754w, https://images.theconversation.com/files/294485/original/file-20190927-51414-8yfkvf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=420&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/294485/original/file-20190927-51414-8yfkvf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=420&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Research_reports/Medium-term_fiscal_projections">Parliamentary Budget Office</a></span>
</figcaption>
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<hr>
<p>There are other contributors to the budget surplus. One is a pretty hefty assumed decline in growth in government spending over the next decade, amounting to 1% of GDP, taking government spending from around 24.9% of GDP to around 23.9%.</p>
<p>Much of it is projected to come from tighter eligibility criteria for payments, and measures to constrain their growth, something the PBO believes might be difficult to maintain:</p>
<blockquote>
<p>The spending restraint seen over the past few years may be increasingly difficult to maintain over coming years given the length of time over which restraint has been applied, the pressures emerging in some spending areas, and the potential need for fiscal stimulus, noting that the projected improvement in the budget balance is mildly contractionary.</p>
</blockquote>
<p>What it is saying, gently, is that it the longer the government attempts to restrain spending (for instance by imposing tough conditions on access to benefits and <a href="https://theconversation.com/robo-debt-class-action-could-deliver-justice-for-tens-of-thousands-of-australians-instead-of-mere-hundreds-123691">using debt collectors to recover alleged overpayments</a>), the harder it will get.</p>
<p>And it is saying the government might need to spend in ways it hasn’t accounted for, including on measures to support the economy in the event of a downturn.</p>
<h2>Budget conventions to the rescue</h2>
<p>The projections assume the opposite of a downturn.</p>
<p>No blame should attach to this government for them, but our rather odd budget conventions dictate that the worse the economy is, the better the budget’s projections for economic growth. That’s right: the weaker our current economic growth, the stronger the budget’s projections for future economic growth.</p>
<p>The thinking is that over the long term, the economy should grow at roughly its long-term average growth rate. To get there when the economy is weak, <a href="https://theconversation.com/why-weve-the-weakest-economy-since-the-global-financial-crisis-with-few-clear-ways-out-122942">as it is now</a>, the budget assumes several years of stronger than normal economic growth to catch up.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/their-biggest-challenge-avoiding-a-recession-117381">Their biggest challenge? Avoiding a recession</a>
</strong>
</em>
</p>
<hr>
<p>In this case it’s five years of stronger than normal economic growth.</p>
<p>The PBO contents itself with the observation that economic growth that was merely normal (or worse, remained weaker than normal) for some of those years would have a “significant and compounding effect on the budget position over time.”</p>
<p>The surplus is far from assured, and it shouldn’t be. The government might well find that it can’t and shouldn’t restrain spending on payments as much as is projected in the decade ahead, and it might find it needs to spend to support the economy.</p>
<p>It will almost certainly find that lifting the tax take on middle Australians from 14.9% of income to 18.8% is intolerable.</p><img src="https://counter.theconversation.com/content/124273/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Middle earners are set to pay 18.8% of their income in tax instead of 14.9% under the projections that show 10 years of surplus budgets.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1175552019-05-23T14:43:12Z2019-05-23T14:43:12ZSouth Africa needs a functioning parliamentary budget office: now’s the time to fix it<figure><img src="https://images.theconversation.com/files/275837/original/file-20190522-187185-1q4o0po.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African parliamentarians need impartial and expert advice about public finance issues</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>South Africa’s <a href="https://www.parliament.gov.za/parliamentary-budget-office">Parliamentary Budget Office</a> (PBO) is in <a href="https://www.dailymaverick.co.za/article/2018-10-10-budget-office-is-director-less-4-months-after-contract-extended-and-r265000-bursary-recipient-is-also-departing/">complete disarray</a>. In the 10 years since it was established by law, and the five years it has been in operation, the Office has failed to adhere to <a href="https://www.oecd.org/gov/budgeting/OECD-Recommendation-on-Principles-for-Independent-Fiscal-Institutions.pdf">key principles</a> of institutional and political independence, technical credibility and transparency. For these and other reasons it has failed to give parliamentarians, and the public, a credible alternative analysis of South Africa’s public finances.</p>
<p>With the swearing-in of a new Parliament and president, there is a chance to change this for the better. The first six months will be crucial. They will determine whether the Office can be set on a path that will lead to a proud institutional legacy. If not, the institution will be a waste of public money that generates mediocre and politically compromised analysis - in which case it should be euthanased.</p>
<p>South Africa’s parliamentarians may look further afield for inspiration. For example, the history of the American Congressional Budget Office illustrates what’s possible. Its founding director, <a href="https://www.npr.org/2019/05/14/695947928/alice-rivlin-first-woman-to-serve-as-budget-director-dies-at-age-88">Alice Rivlin</a>, who died last week, was not just an accomplished bureaucrat. She was also an economist of calibre in her own right. And the legacy she left in the form of the US Congress’s budget office is one of a technically and politically credible institution that plays an important role in that country’s democracy.</p>
<p>Parliamentary budget <a href="http://www.oecd.org/governance/budgeting/oecdnetworkofparliamentarybudgetofficialspbo.htm">offices</a> have been established in many countries. They can play a valuable role in any democratic system by providing impartial, expert advice to parliamentarians about public finance issues in a transparent manner. This strengthens oversight of government’s public finance decisions by parliamentarians and civil society.</p>
<p>South Africa’s is in urgent need of reform. The Constitution envisages a fundamental role for Parliament in holding the state to account and ensuring the voices of citizens and civil society are heard beyond elections. With the current state of the <a href="http://www.statssa.gov.za/?p=11969">economy</a> and public <a href="https://www.bloomberg.com/news/articles/2019-04-02/moody-s-sees-south-africa-debt-profile-in-line-with-baa3-rating">finances</a>, there are few areas more in need of credible, robust oversight. </p>
<p>The Parliamentary Budget Office could play a major role in ensuring that this happens. But to do so it must be a technically credible institution that is entirely independent of political influence. Unfortunately, the first opportunity to do this was squandered – resulting in 10 lost years.</p>
<h2>Dysfunctional</h2>
<p>The creation of South Africa’s own parliamentary budget office by the <a href="https://www.parliament.gov.za/storage/app/media/PBO/act-9-2009-money-bill-amendment-procedure.pdf">Money Bills Act</a> in 2009 was an important step. But the process of its establishment was flawed from the start. And those failures have recently been compounded and concealed. </p>
<p>One thing that is clear is that since its establishment the PBO has been in thrall to political influence – most notably from factions within the majority African National Congress (ANC). Such political influence also appears to have obstructed any clean-up of the office. </p>
<p>The problems around the appointment of a credible director illustrate this well.</p>
<p>In 2018 the ANC in Parliament <a href="https://pmg.org.za/committee-meeting/26438/">rushed through</a>, with no public consultation and no serious consideration of his performance, a reappointment of its first director. A few months later, shortly after the completion of a forensic investigation into a range of alleged irregularities, he <a href="https://www.businesslive.co.za/bd/national/2018-09-03-da-welcomes-resignation-of-the-head-of-the-parliamentary-budget-office/">resigned</a>.</p>
<p>The director’s post has now been vacant for almost nine months with no attempt to fill it. Initially Parliament said a series of acting directors would be <a href="http://pmg-assets.s3-website-eu-west-1.amazonaws.com/181122NAPC_22_November.pdf">appointed </a> to give internal deputies a chance – a terrible argument. But even that has reportedly not been done, leaving the post vacant and Parliament arguably in violation of its own law.</p>
<p>The committees responsible argued that they wanted to let the new Parliament choose its own director, but that implies the post will be filled based on political considerations which it should not be. Furthermore, while the <a href="https://www.businesslive.co.za/bd/national/2018-05-24-the-director-of-the-parliamentary-budget-offices-contract-is-extended-to-chagrin-of-da/">reappointment</a> of the previous director was brief, it allowed him to reappoint staff whose contracts would have ended. This deprived any new director of the opportunity to appoint staff untainted by the institution’s recent history.</p>
<p>Meanwhile, the Parliament spokesperson has <a href="https://www.businesslive.co.za/bd/national/2018-09-03-da-welcomes-resignation-of-the-head-of-the-parliamentary-budget-office/">sought to obscure</a> the existence of the forensic investigation. The final report is yet to be placed in the public domain and there is no indication that any action has been taken.</p>
<p>Another big challenge is the fact that under the previous director an informal advisory board was created that was composed of only ANC MPs. This was arguably illegal at the time. Recent <a href="https://mg.co.za/article/2017-07-24-explainer-why-amendments-to-sas-money-bills-act-matter">amendments</a> to the Office’s founding legislation have ill-advisedly formalised this politically homogeneous structure in law and given it the power to appoint an acting director. </p>
<p>Concerns were <a href="https://pmg.org.za/committee-meeting/27139/">raised</a> about this during the public consultation process, but inexplicably ignored. The implications of that are now becoming apparent.</p>
<p>The former house chairperson who oversaw the original, invalid board, <a href="https://www.timeslive.co.za/politics/2019-03-29-anc-mp-cedric-frolick-in-a-corrupt-relationship-for-10-years-angelo-agrizzi/">Cedric Frolick</a>, was expected to be replaced by <a href="https://www.sowetanlive.co.za/news/south-africa/2019-05-04-nomvula-mokonyane-wants-to-cross-examine-agrizzi-at-state-capture-inquiry/">Nomvula Mokonyane</a>. Both have been implicated in corruption during the <a href="https://www.sastatecapture.org.za/">State Capture Inquiry</a>. </p>
<p>While it has recently been reported that Mokonyane has withdrawn from Parliament of her own accord, it remains to be seen who will replace her. If anyone deeply implicated in corruption oversees the appointment of an acting director it could sound the death knell for the Office.</p>
<p>On the positive side, under law the multiparty committees of finance and appropriations retain responsibility for recommending a new director. Who the ANC appoints as chairpersons of these four committees will be important – for the Office and public finance oversight more generally. Another potential positive is that the new Speaker, <a href="https://www.sahistory.org.za/people/thandi-modise">Thandi Modise</a>, has a better reputation for non-partisanship than her predecessor. </p>
<p>While the Speaker has little direct responsibility for the budget office in law, within the political structures of Parliament they can either hamper, or enable, committee chairpersons in acting in accordance with their legislated duties to oversee a functional and nonpartisan Office. But at this point it is unknown whether Modise was complicit in past inaction and the active shielding of the Office and its director from accountability.</p>
<p>If the new Parliament is to do better, the appointment as director of a technically credible economist who is robustly independent and of the highest ethical repute will be crucial. Implementation of amendments to the Money Bills Act, which explicitly establish the Office as a juristic entity, will also be important. </p>
<p>Civil society and the public at large should pay close attention to both matters in order to ensure that the institution is not compromised a second time. The experience of other countries suggests that if the ANC under President Cyril Ramaphosa ensures the Office is established credibly, it could turn out to be one of his most valuable democratic legacies in decades to come.</p><img src="https://counter.theconversation.com/content/117555/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seán Mfundza Muller receives funding from a European Union-funded project, "Putting People back in Parliament", led by the Dullah Omar Institute (University of the Western Cape), in collaboration with the Parliamentary Monitoring Group, Public Service Accountability Monitor (Rhodes) and Heinrich Boell Foundation (South Africa). He is affiliated with the Public and Environmental Economics Research Centre (University of Johannesburg), regularly making inputs to Parliament oversight of the national budget, advising civil society groups on public finance matters and consulting for private sector organisations on an ad hoc basis. He resigned from the South African Parliamentary Budget Office in 2016 and has made a number of subsequent submissions to Parliament on matters related to the PBO. The views expressed are his own.</span></em></p>With the current state of the South African economy and public finances, the Parliamentary Budget Office could play a major role in ensuring that this happens. But the office is in complete disarraySeán Mfundza Muller, Senior Lecturer in Economics and Research Associate at the Public and Environmental Economics Research Centre (PEERC), University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1027122018-09-06T03:26:43Z2018-09-06T03:26:43ZMorrison’s return to surplus built on the back of higher tax – Parliamentary Budget Office<p>First, the good news. The Parliamentary Budget Office’s latest <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Research_reports/Medium-term_budget_projections">medium-term budget projections</a> provide
independent reassurance that the government’s personal income tax cuts, announced in the May budget and passed through parliament in June, can be funded without pushing the budget back into deficit. </p>
<p>But they also sound warnings about the downside risks from weaker-than-assumed economic or wages growth, and from any relaxation of the spending restraint
that successive governments have maintained since 2012.</p>
<h2>More income tax</h2>
<p>The PBO projects the federal government’s “underlying” cash balance to improve from 0.8% of GDP in 2021-22, the last year of the latest budget’s forward estimates period, to 1.3% of GDP in 2028-29.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/budget-policy-check-does-australia-need-personal-income-tax-cuts-94500">Budget policy check: does Australia need personal income tax cuts?</a>
</strong>
</em>
</p>
<hr>
<p>That’s after allowing for the revenue forgone by the tax cuts. Without these, and in the absence of any other spending or revenue measures, the surplus would have reached 3.7% of GDP (my calculation, not the PBO’s), largely on the back of the “bracket creep” that would have occurred without some form of personal income tax cuts between now and then. </p>
<p>Even so, there’s an awful lot of bracket creep.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/235133/original/file-20180906-191841-1p0err4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/235133/original/file-20180906-191841-1p0err4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/235133/original/file-20180906-191841-1p0err4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/235133/original/file-20180906-191841-1p0err4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/235133/original/file-20180906-191841-1p0err4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/235133/original/file-20180906-191841-1p0err4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=477&fit=crop&dpr=1 754w, https://images.theconversation.com/files/235133/original/file-20180906-191841-1p0err4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=477&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/235133/original/file-20180906-191841-1p0err4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=477&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Projected change in average income tax rates by quintile.</span>
<span class="attribution"><a class="source" href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Research_reports/Medium-term_budget_projections">Parliamentary Budget Office, 2018-19 Budget: Medium-Term Projections (September 2018)</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The average tax rate across all taxpayers is projected to increase from 22.9% to 25.2% – that is, by 2.3 percentage points. For taxpayers in the second and middle quintiles (the middle fifth and the second-to-bottom fifth) it’s even worse. They will see their average rates rise by more than 4 percentage points. The average tax rate for those in the top and bottom quintiles will climb by less than 1 percentage point.</p>
<p>The PBO’s projections allow for only slight additional relief; small reductions in 2027-28 and 2028-29, worth about 0.4% of GDP, to ensure tax receipts remain within the government’s “cap” of 23.9% of GDP in the final two years of the 10-year projection period.</p>
<h2>A helpful backdown on company tax</h2>
<p>The PBO’s forecasts don’t allow for the government’s recent decision to abandon
the previously proposed cut in the corporate tax rate for companies with annual turnover exceeding $50 million, which it had been unable to pass through the Senate. That would add the equivalent of almost 0.5 of a percentage point of GDP to the surplus by 2028-29, unless offset by other measures (which it probably will be).</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-full-story-on-company-tax-cuts-and-your-hip-pocket-59458">The full story on company tax cuts and your hip pocket</a>
</strong>
</em>
</p>
<hr>
<p>By law, the PBO is required to use the same economic assumptions in framing its medium-term projections as those used in the most recent federal budget.</p>
<h2>Wishful economic thinking</h2>
<p>These requirements mean the projections are conditioned on, among other things, “above-trend economic growth for much of the period” and “a return to close to trend wages growth” by 2021-22. </p>
<p>This week’s national accounts data lend some near-term support to the first of these assumptions, but they (and other data) cast further doubt on the likelihood of wages growth returning to trend in line with the budget assumptions. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/this-is-what-policymakers-can-and-cant-do-about-low-wage-growth-101025">This is what policymakers can and can't do about low wage growth</a>
</strong>
</em>
</p>
<hr>
<p>The PBO notes that, as a direct result of the government’s personal income tax plan, any weakness in future tax receipts flowing from “weaker economic circumstances” will “flow through directly to the budget bottom line”.</p>
<h2>A decade of tight spending</h2>
<p>The report highlights the importance of policy decisions in stemming the flow of new spending decisions and tightening eligibility for benefit payments since 2012. </p>
<p>Much of the impact of these will show up more clearly over the next decade. Apart from three areas – the National Disability Insurance Scheme (NDIS), aged care and defence, on which spending is projected to rise by a little over 1 percentage point of GDP over the next decade – other government spending is projected to
fall by around 2 percentage points of GDP between 2017-18 and 2028-29.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/government-spending-explained-in-10-charts-from-howard-to-turnbull-77158">Government spending explained in 10 charts; from Howard to Turnbull</a>
</strong>
</em>
</p>
<hr>
<p>The PBO notes that “the spending restraint seen over the past few years … may be
increasingly difficult to maintain with an improving budget outlook”. </p>
<p>(Unintentionally) highlighting that risk, the PBO explicitly notes that the proposed further increase in the pension eligibility age to 70 between 2023 and 2035 – which the government abandoned this week – was “projected to have a significant impact on Age Pension spending … over the next decade”.</p><img src="https://counter.theconversation.com/content/102712/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Saul Eslake is an unpaid member of the Parliamentary Budget Office's Advisory Panel </span></em></p>The promised budget surplus depends on everything going right, and much more income tax says the Parliamentary Budget Office.Saul Eslake, Vice-Chancellor’s Fellow, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/856722017-10-16T06:40:04Z2017-10-16T06:40:04ZMiddle-income earners probably won’t be paying as much tax as the government expects<figure><img src="https://images.theconversation.com/files/190344/original/file-20171016-21951-yfukwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The PBO has likely overestimated future personal income tax revenue.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The federal government’s return to a budgetary surplus by 2020/21 will mainly be due to a projected increase in personal income tax revenue, according to a <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Reports/Research_reports/Report_03_2017">report</a> from the Parliamentary Budget Office (PBO). </p>
<p>The PBO modelling shows that people in the middle of the income spectrum will bear the brunt of this, due to bracket creep. This occurs when tax thresholds (including the tax free threshold) stay constant while income grows due to inflation. </p>
<p>But the PBO modelling includes assumptions about inflation and wages growth that do not bear a resemblance to what is happening in the economy. Both inflation and wages growth have been depressed for some time, and there’s little reason to believe there will be a sudden increase. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-market-forces-and-weakened-institutions-are-keeping-our-wages-low-83446">How market forces and weakened institutions are keeping our wages low</a>
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</em>
</p>
<hr>
<p>The fundamental assumption driving the PBO projections is nominal (not adjusted for inflation) income growth of between 4% and 5%. This <a href="http://www.budget.gov.au/2017-18/content/bp1/html/">consistutes</a> 2% to 2.5% annual inflation and 2.5% to 3% percent annual increase in real income.</p>
<p>The difference between nominal and real incomes is important as it is increases in real income (adjusted for inflation) that result in higher standards of living. But taxes are levied on our nominal incomes, regardless of inflation. Because of this difference, bracket creep means that real incomes after tax (otherwise known as disposable income) will actually fall.</p>
<h2>What the PBO report projects</h2>
<p>To calculate how much tax we will be paying in the future, the PBO first makes <a href="http://www.budget.gov.au/2017-18/content/bp1/html/">assumptions</a> about inflation and real earnings growth and uses these to project individual incomes. Current income tax rates are then applied to these projected incomes, and the increased amount paid by each individual is added together. </p>
<p>According to the PBO’s modelling, the average individual tax rate will increase by 2.3% from 2017–18 to 2021–22. And every income group will see their tax rates increase over this period. </p>
<p>The largest tax increase is expected for individuals in the middle incomes, who have an average taxable of A$46,000 in 2017/18. This group are projected to face an increase in their average tax rate of 3.2% by 2021–22. Their average tax rate is expected to increase from 14.9% to 18.2%.</p>
<p>Meanwhile, those in the second lowest and two highest income quintiles are expected to see their average tax rate rise between 1.9% and 2.5%. The average tax rate for individuals in the lowest income group is projected to rise by only 0.2%, as most of their income remains below the tax free threshold.</p>
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<p>The increases in average tax rates are even greater if a comparison is made with 2016/17, the latest year for which individuals have been paying tax. As you can see in the previous chart, when compared to 2016/17, individuals in the middle income quintile will see their average tax rate rise by 3.8%.</p>
<p>As you can see, the largest burden of the tax brack creep will fall on “average Australians”. This is because they will see their nominal (before adjusting for inflation) incomes rise. Typically, the lowest income earners do not earn enough to get above the tax free threshold and the highest income earners already pay a large portion of their tax at the top marginal rates. </p>
<p>Because of increasing inflation and wage growth, the Parliamentary Budget Office projects that even the lowest income earners will be liable to pay income tax by 2019/20.</p>
<h2>Heroic assumptions?</h2>
<p>The 2% to 2.5% inflation assumed in PBO’s forecast is in the mid-point of the Reserve Bank’s <a href="https://www.rba.gov.au/inflation/inflation-target.html">target range</a> of 2% to 3%, so this is not entirely unreasonable assumption. </p>
<p>But both PBO’s inflation and wage growth (2.5% to 3%) assumptions are currently way above the levels seen in the economy. According to the <a href="http://www.ausstats.abs.gov.au/ausstats/meisubs.nsf/0/BA7D60447686E5E1CA2581680012D28D/$File/64010_jun%202017.pdf">ABS</a> annual inflation currently stands at just 1.8%, and the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6302.0">earnings of all Australian employees</a> is growing at 1.6% per annum. </p>
<p>The reasons for persistent low inflation, not just in Australia but in most other industrialised countries, are <a href="https://www.rba.gov.au/speeches/2017/sp-gov-2017-09-05.html">not well understood or agreed upon</a>. </p>
<p>And a <a href="https://theconversation.com/budget-explainer-why-is-australias-wage-growth-so-sluggish-56597">number of theories</a> have been put forward to explain low real wage growth including, the degree of underemployment, reduced job security, declining bargaining power of unions and increased potential competition, either from advances in technology or from international competition. </p>
<p>But regardless of the reasons for the persistently laggard growth in wages and inflation, there are also no signs that these rates will rise significantly any time soon, let alone to the levels assumed by the PBO. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/budget-explainer-why-is-australias-wage-growth-so-sluggish-56597">Budget explainer: why is Australia's wage growth so sluggish?</a>
</strong>
</em>
</p>
<hr>
<p>Given the information contained in the PBO report we can’t calculate exactly what the impact of these tax increases will be for individuals. </p>
<p>However, it is clear that if the current wage and price conditions persist the actual tax revenue will fall way short of the projected figures for all years up to and including 2021/22 and make a Budget balance even further off.</p>
<p>We can also make some extrapolations based on averages. As a simple example, consider someone on an annual income of A$84,000 in 2017/18 (which is around the <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6302.0Main+Features1May%202017?OpenDocument">current average earnings in Australia</a>). Under the assumption that nominal incomes increase by only 2% per year, the tax paid (including Medicare levy) in 2020/21 would be A$23,158. </p>
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<p>However, if you compare this to nominal income growth of 5% (which is what the PBO assumes) the tax paid would be A$26,357 in 2020/21. </p>
<p>That is, tax collected from this individual would be 12% less under a low growth scenario than under the PBO’s more optimistic scenario. In the years 2018/19 and 2019/20 the tax collected would be respectively 4% and 8% less. This illustrates how precarious the projection of a balanced Budget in 2020/21 is.</p>
<p>Whatever the outcome, it is for certain that income earners will see any nominal increases eroded not just by inflation, but also through bracket creep.</p><img src="https://counter.theconversation.com/content/85672/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Lewis does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. He also has no relevant affiliations. During his career he has received funding from many private and public sector organisations including most recently the ARC, NCVER, DEEWR, the AFPC, ABLA and CPA Australia.
</span></em></p>The parliamentary budget office expects Australians to be paying significantly higher average tax rates in 2020/21, but their assumptions bear no relation to reality.Phil Lewis, Professor of Economics, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/814132017-07-24T08:06:44Z2017-07-24T08:06:44ZExplainer: why amendments to South Africa’s ‘Money Bills Act’ matter<figure><img src="https://images.theconversation.com/files/179164/original/file-20170721-18148-1riojii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's previous finance minister, Pravin Gordhan, delivering his medium term budget last October.</span> <span class="attribution"><span class="source">Nic Bothma/EPA</span></span></figcaption></figure><p>South Africa’s public finances may be in their worst state since the first democratic elections in 1994. One source of these woes was the 2008 financial crisis. But its effects have been compounded by bad political decisions which have led to slower economic growth, under-performance of tax revenue collection and higher borrowing.</p>
<p>At the top of the list of bad decisions has been appointments to critical institutions that appear to have been based on patronage with the intention of facilitating corruption. In the public finance space these include the <a href="https://www.businesslive.co.za/bd/national/2017-07-21-gupta-e-mails-reveal-suspected-multibillion-rand-tax-avoidance-scheme/">South African Revenue Service</a>, <a href="http://www.reuters.com/article/us-safrica-gordhan-idUSKBN1710YW">Ministry of Finance</a>, and the board members and managers of key state-owned entities.</p>
<p>The poor management and loss of investor confidence that’s followed <a href="https://mg.co.za/article/2017-04-05-public-enterprises-played-a-big-part-in-south-africas-credit-ratings-downgrade">played a significant role</a> in South Africa’s recent credit rating downgrades. The downgrades compounded the broader public finance challenges by increasing borrowing costs for national government and state-owned enterprises.</p>
<p>In this environment, there’s increasing appreciation for the general oversight role and powers of Parliament, which has <a href="https://www.timeslive.co.za/politics/2017-06-19-parliament-directs-committees-to-investigate-state-capture-allegations/">initiated investigations into various state entities</a>.</p>
<p>Parliament has overall oversight of public finances, including the national budget, a role that is becoming increasingly important. Which is why it’s worth paying attention to the processes by which Parliament exercises oversight, and the institutions involved.</p>
<p>The Money Bills Amendment Procedure and Related Matters <a href="https://www.parliament.gov.za/storage/app/media/PBO/act-9-2009-money-bill-amendment-procedure.pdf">Act</a> (“Money Bills Act”) of 2009 is a vital piece of the puzzle. Parliament has <a href="https://pmg.org.za/call-for-comment/572/">asked</a> for public comment on a series of <a href="https://pmg.org.za/bill/716/">proposed amendments</a>. Here’s why they matter.</p>
<h2>What’s at stake</h2>
<p>The Act guides Parliament’s oversight of taxes and borrowing, how those funds are distributed to different spheres of government (national, provincial and local), and national spending priorities. For example, the Act sets out the processes through which the national budget is <a href="https://theconversation.com/explainer-the-nitty-gritty-of-south-africas-annual-budget-72901">approved</a> by Parliament. It created a <a href="https://www.parliament.gov.za/parliamentary-budget-office">Parliamentary Budget Office</a> to <a href="https://www.businesslive.co.za/bd/opinion/2016-08-11-the-important-role-of-the-parliamentary-budget-office/">provide</a> credible, independent and non-partisan advice to members of parliament (MPs). And it instructs provincial parliaments (“legislatures”) on how their oversight processes should work.</p>
<p>Amendments have been <a href="https://pmg.org.za/committee-meeting/14144/">mooted</a> almost since Parliament started implementing the Act seven years ago. The latest proposals are primarily the result of suggestions by Parliament’s legal advisers and deliberation among MPs from the finance and appropriations committees.</p>
<p>The main amendments relate to three broad sets of issues: </p>
<ul>
<li><p>how Parliament committees deal with public finance legislation and proposals; </p></li>
<li><p>the institutional structure of the Parliamentary Budget Office; and, </p></li>
<li><p>oversight processes of provincial legislatures. </p></li>
</ul>
<p>One of the main concerns with the current Act is the time frames provided for oversight. Public finance issues can be complex and Parliament must facilitate public comment and engagement. But the Act allows little time for this. </p>
<p>Various amendments relax time constraints by adding the phrase, “or as soon as reasonable thereafter”. More time is important. But an open-ended statement like this could simply introduce uncertainty. </p>
<h2>The parliamentary budget office</h2>
<p>The intention of the original Act was that the office should be independent from Parliament’s administration. But this has never been properly implemented. The proposed amendments make independence even more explicit. They envisage making the Parliamentary Budget Office a “juristic person” and its director the accounting officer, while detailing the director’s financial management responsibilities. This is welcome to the extent that it removes any room for doubt, debate or misrepresentation.</p>
<p>In the current Act, the finance and appropriations committees are responsible for overseeing aspects of the office’s functioning. The amendments propose, instead, an “advisory board” of committee chairpersons and two “house chairpersons”. </p>
<p>In fact, this has been happening. But it’s problematic. The Parliamentary Budget Office should support MPs across the political spectrum. But currently all chairperson positions are held by representatives of the African National Congress (ANC). This is particularly problematic when it comes to the appointment of an acting director: representatives of one political party should not make that decision on their own.</p>
<p>Other amendments concern the Parliamentary Budget Office’s access to information from organs of state. There is <a href="https://www.oecd.org/gov/budgeting/Independent-Fiscal-Institutions-Developing-good-practices.pdf">general agreement</a> across the world that this is critical, but the original Act didn’t address it explicitly. So these amendments are welcome, even though they could be strengthened.</p>
<h2>Provincial legislatures</h2>
<p>The current Act sets out norms and standards for provincial legislatures that they “must adhere to”. This could be unconstitutional, because it infringes on provincial legislatures’ right to determine their own processes.</p>
<p>As a result, an amendment rephrases this as, “must take into account”. Corresponding changes are made to the schedule of norms and standards, but the usefulness of the end result is questionable. </p>
<p>Perhaps a simple statement that decisions on provincial finances must be consistent with decisions already taken in the national parliament would be more appropriate. </p>
<h2>What’s missing</h2>
<p>A number of important issues haven’t been dealt with in the proposed amendments. These include:</p>
<ul>
<li><p>Oversight of taxes: The amendments don’t address incoherence in Parliament’s oversight of taxes. At present, the Minister of Finance announces tax proposals in February and these are treated for the most part as if they come into effect immediately. In fact, Parliament’s finance committees produce a report within 16 days indicating whether they agree or disagree with the proposals. And the actual legislation is only promulgated between July and October. Does it make sense that a major tax proposal could be blocked so late in the fiscal year? The sensible thing, taking into account bureaucratic challenges for the Treasury and Revenue Service, would be for tax legislation to be tabled with the Budget.</p></li>
<li><p>Integrity and independence of the Parliamentary Budget Office: The original Act refers to the technical and management competences required of the office’s director. But a Parliamentary Budget Office should also be led by a person of the highest integrity. It would therefore be appropriate for an amendment to specify that the director should be a “fit and proper person”. A related issue is an amendment that allows the director’s contract to be renewed based on performance. Given that it’s unclear who the director accounts to on a yearly basis, it’s not clear how performance would be assessed. Lastly, nothing in the current Act, or amendments, explains how the Parliamentary Budget Office’s budget is set. Since an inadequate budget can compromise administrative and political independence, some minimum protections should be put in place. </p></li>
</ul>
<p>The current Parliamentary Budget Office hasn’t <a href="https://theconversation.com/why-south-africas-public-finance-watchdog-failed-its-mandate-on-nuclear-65128">pursued it’s mandate</a> as it should have. At some point in the future the stability of South Africa’s public finances may depend on it doing so.</p><img src="https://counter.theconversation.com/content/81413/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seán Mfundza Muller worked for the Parliamentary Budget Office for two years from 2014 until his resignation in 2016, during which time he was involved in advising on amendments to the Money Bills Act. All analysis in the article is based on publicly available information.</span></em></p>The amendments to South Africa’s Money Bills Act don’t go far enough - for one, they do not address incoherence in Parliament’s oversight of taxes.Seán Mfundza Muller, Senior Lecturer in Economics, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/651282016-09-18T16:43:28Z2016-09-18T16:43:28ZWhy South Africa’s public finance watchdog failed its mandate on nuclear<figure><img src="https://images.theconversation.com/files/137422/original/image-20160912-19222-1fviu4c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Controversy dogs South Africa's nuclear energy plans.</span> <span class="attribution"><span class="source">Siphiwe Sibeko/Reuters</span></span></figcaption></figure><p>South Africa’s Parliamentary Budget Office is a largely unknown but <a href="http://www.bdlive.co.za/opinion/2016/08/11/the-important-role-of-the-parliamentary-budget-office">important</a> institution. It was established <a href="http://www.parliament.gov.za/live/content.php?Category_ID=817">in 2009</a> to provide technically credible, independent advice to members of parliament about public finance and economic issues.</p>
<p>Evidence from other countries suggests that the credibility and independence of such an office is only truly tested when it is asked to provide advice about a politically significant issue. South Africa’s Parliamentary Budget Office recently faced just such a test when it advised MPs on the <a href="http://m.timeslive.co.za/thetimes/?articleId=17466503">country’s proposed procurement</a> of nuclear energy. The nuclear plan has been estimated to cost as much as <a href="https://theconversation.com/how-the-state-capture-controversy-has-influenced-south-africas-nuclear-build-58879">R1 trillion</a>.</p>
<p>But an analysis shows that the office’s recent presentation and report to MPs was sorely lacking. It failed to produce a credible analysis of the likely total cost of the proposed nuclear programme or its impact on public finances. </p>
<p>Although the office, contrary to international best practice, does not make its presentations and reports public, it is possible to <a href="https://pmg.org.za/committee-meeting/23219/">access them</a> on the <a href="https://pmg.org.za/">Parliamentary Monitoring Group’s</a> website.</p>
<h2>Financial implications for future generations</h2>
<p>In 2015 <a href="https://pmg.org.za/committee-meeting/21700/">the office was</a> asked by the then chair of the Standing Committee on Appropriations in Parliament, Paul Mashatile, to advise on the proposed nuclear procurement. He made it clear that the office’s primary focus had to be public finances:</p>
<blockquote>
<p>Where are we going to get this money, the R1 trillion? We are dealing with questions of affordability…when all is said and done…and [not burdening] our children and grandchildren. </p>
</blockquote>
<p>Mashatile’s position is compatible with the law. Appropriations committees are supposed to focus on public expenditure. </p>
<p>The Parliamentary Budget Office had 10 months to prepare its findings. Yet its final report was essentially a desktop summary of various other institutions’ work. It compared the cost of producing a given unit of energy across different energy generating sources.</p>
<p>This itself is <a href="https://theconversation.com/what-does-nuclear-power-cost-old-plants-dispel-easy-answers-41379">complex terrain</a>. Some experts argue that <a href="https://www.brookings.edu/blog/planetpolicy/2014/05/20/why-the-best-path-to-a-low-carbon-future-is-not-wind-or-solar-power/">nuclear is the cheapest</a> of the low emission options. But that conclusion has been <a href="http://www.rmi.org/Knowledge-Center/Library/2014-21_Frank-Rebuttal">challenged</a>. Either way, a public finance-oriented institution like the Parliamentary Budget Office is not well-placed to adjudicate on such issues.</p>
<p>Worse still, the office’s presentation and report were phrased in a way that allowed both proponents and opponents of nuclear to interpret the analysis as supporting their preferred conclusion. This has led <a href="http://mg.co.za/article/2016-09-08-government-quibbles-over-true-cost-of-nuclear-but-its-going-to-be-very-expensive">some observers</a> to incorrectly report that the office’s findings opposed the nuclear programme.</p>
<p>Besides vague statements about factors related to public finances, the office’s report contained no substantive analysis of electricity demand. It also did not have a total cost of the project or its affordability. MPs were left uninformed about the possible implications for public finances.</p>
<h2>Credible, independent analysis needed</h2>
<p>In other countries, analysis by parliamentary budget offices fulfils two functions. It informs MPs and provides citizens with a genuinely independent, trustworthy perspective on complex and contested public finance issues. </p>
<p>There’s a wide range of voices arguing different <a href="https://www.wider.unu.edu/publication/social-shaping-nuclear-energy-technology-south-africa">positions on nuclear</a> in South Africa. Power utility <a href="https://www.esi-africa.com/news/eskom-remains-confident-with-its-nuclear-aspirations/">Eskom</a>, various nuclear power-related institutions and politicians in one faction of the governing ANC are arguing that <a href="http://mg.co.za/article/2015-09-01-nuclear-build-will-be-affordable">nuclear is needed</a> and affordable. On the other side, civil society organisations, opposition parties, renewable energy producers and <a href="http://www.bdlive.co.za/opinion/2016/03/29/nuclear-too-costly-and-sa-does-not-even-need-it">independent energy experts</a> argue vociferously that nuclear is undesirable, unnecessary and unfeasible.</p>
<p>The average, impartial citizen may be unsure who to believe. Meanwhile, statements by South Africa’s <a href="https://theconversation.com/nuclear-power-in-south-africa-only-on-a-scale-and-pace-the-country-can-afford-54630">president</a>, <a href="http://mg.co.za/article/2016-09-08-govt-hasnt-made-a-nuclear-deal-with-any-country-ramaphosa">deputy president</a> and the ministers of <a href="http://www.fin24.com/Economy/joemat-pettersson-govt-will-stick-to-affordable-nuclear-plan-20160511">energy</a> and <a href="http://www.sabc.co.za/news/a/9cf8ed804e2996b98b4fef0dc62e05da/Nuclear-not-going-to-happen-anytime-soon:-Gordhan-20160809">finance</a> have made it clear that</p>
<blockquote>
<p>(nuclear procurement will only be pursued at) a scale and pace the country can afford. </p>
</blockquote>
<p>So the obvious question is: who will give ordinary South Africans a credible affordability analysis? A report by a competent, genuinely independent and non-partisan institution could have carried <a href="http://www.financialmail.co.za/opinion/editorial/2016/09/08/editorial-sas-great-nuclear-non-debate">significant weight</a>.</p>
<p>The Parliamentary Budget Office repeatedly asserted that affordability issues were not in the “mandate” from parliament’s Standing Committee on Appropriations. This is difficult to verify because the office does not publish research requests, final terms of reference or its reports and presentations. But it seems unlikely that the financial feasibility of nuclear was omitted from the terms of reference given the motivation articulated by Mashatile.</p>
<p>So what should the office have done?</p>
<h2>What should have been done</h2>
<p>First, it should have attempted as detailed a bottom-up costing of the nuclear programme as possible in the time available. This would include:</p>
<ul>
<li><p>the likely costs of building power plants, </p></li>
<li><p>the associated costs of financing that investment,</p></li>
<li><p><a href="https://www.cbo.gov/publication/51035">nuclear waste disposal</a> costs, </p></li>
<li><p>future decommissioning costs, and </p></li>
<li><p>insurance costs or liabilities that arise from adequately accounting for the risk of a nuclear disaster. </p></li>
</ul>
<p>There are many international peer institutions the office could have called on. These include, for instance, the US’s <a href="http://www.house.gov/content/learn/partners/congressional_budget_office.php">Congressional Budget Office</a>. </p>
<p>Nor did the office need to reinvent the wheel locally. The Department of Energy has produced a nuclear project costing and the National Treasury has also drafted one. Although the energy department’s costing is <a href="http://www.bdlive.co.za/business/energy/2015/12/14/cabinet-gives-green-light-to-nuclear-procurement">classified</a>, all staff working with parliament recently underwent a state security agency <a href="http://mg.co.za/article/2015-10-30-vetting-of-parliamentary-officials-is-common-practice">clearance process</a>. This means that, with the support of the relevant committees, the office’s staff could have obtained a copy.</p>
<p>Second, the estimated cost should have been used to assess the likely impact on public finances. It barely requires an analysis to show that, whether it costs R500 billion or R1.5 trillion, funding the proposed nuclear programme directly is unaffordable. Having briefly noted that, a public finance analysis would shift to considering the various public-private partnership and “<a href="http://mg.co.za/article/2014-09-18-can-sa-afford-to-go-nuclear">vendor financing</a>” models likely to be used instead.</p>
<p>These instruments have their uses. The problem is that they shift the risks and expenses to future years. That is when either consumers, government or both would have to start repaying the successful bidder. This potentially allows politicians to take bad decisions now and be long gone by the time the negative consequences become apparent. So an important aspect of the analysis would be assessing the financial implications for future time periods and future generations.</p>
<p>In doing this analysis, it is critical to account for what would happen if the power produced by nuclear plants is not needed for the foreseeable future - which I have <a href="http://www.bdlive.co.za/opinion/2016/09/06/the-expensive-risks-of-buying-extra-energy">argued</a> current evidence suggests. The office should have requested energy demand forecasts from Eskom and the energy department.</p>
<p>These failures further denied South Africans and their elected representatives the opportunity to make a sound, well-informed judgement about the programme. It also raises the question of whether there is any purpose in having independent fiscal institutions if they demur when dealing with politically sensitive topics.</p><img src="https://counter.theconversation.com/content/65128/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Mfundza Muller previously worked for the Parliamentary Budget Office from July 2014 until his resignation in July 2016. </span></em></p>South Africa’s Parliamentary Budget Office had 10 months to prepare its findings about the cost of a nuclear programme. Its final report was little more than a summary of other institutions’ work.Seán Mfundza Muller, Senior Lecturer in Economics, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/627772016-08-29T06:12:43Z2016-08-29T06:12:43ZEstimating the ‘cost’ of fuel tax credits is a tricky business<p>In calling for an end to fossil fuel subsidies, <a href="http://reneweconomy.com.au/2015/australia-still-subsidising-fossil-fuels-at-rate-of-1712-per-person-a-year-33164">critics</a> of Australia’s fuel tax credits system have <a href="https://www.getup.org.au/campaigns/mining/global-fossil-fuel-subsidies/tell-the-australian-government-to-end-fossil-fuel-subsidies-now">highlighted</a> its cost to Australian taxpayers and the budget bottom line. </p>
<p>The Greens have <a href="http://greens.org.au/news/vic/australian-greens-pledge-implement-paris-agreement">said</a> that ending fossil fuel subsidies to big mining companies would save Australian taxpayers A$21 billion over the forward estimates (the next four years). On the ABC’s Q&A program, Greens deputy leader Larissa Waters <a href="http://www.abc.net.au/tv/qanda/txt/s4485524.htm">said</a> her party advocated:</p>
<blockquote>
<p>getting rid of the A$24 billion over the forward estimates – that’s four years – in free money that goes to the fossil fuel sector in things like cheap diesel and accelerated depreciation.</p>
</blockquote>
<p>These numbers are drawn from <a href="https://www.electioncostings.gov.au/costings/ending-subsidies-fossil-fuel-use-and-extraction">policy costings</a> produced by the Parliamentary Budget Office (PBO) ahead of the July federal election. </p>
<p>The PBO’s <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/2016_post-election_report">2016 post-election report</a>, which details the budget impacts of various election commitments, notes that:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/133314/original/image-20160808-478-1hf65hv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/133314/original/image-20160808-478-1hf65hv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/133314/original/image-20160808-478-1hf65hv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=87&fit=crop&dpr=1 600w, https://images.theconversation.com/files/133314/original/image-20160808-478-1hf65hv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=87&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/133314/original/image-20160808-478-1hf65hv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=87&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/133314/original/image-20160808-478-1hf65hv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=110&fit=crop&dpr=1 754w, https://images.theconversation.com/files/133314/original/image-20160808-478-1hf65hv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=110&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/133314/original/image-20160808-478-1hf65hv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=110&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/2016_post-election_report">Parliamentary Budget Office, 2016 post-election report</a></span>
</figcaption>
</figure>
<p>The Greens <a href="https://www.electioncostings.gov.au/costings/ending-subsidies-fossil-fuel-use-and-extraction">propose</a> abolishing fuel tax credits for all industries except agricultural businesses, ending accelerated asset depreciation for aircraft, the oil and gas industry and vehicles (except for those used for agricultural purposes), and a range of other measures. </p>
<p>Opinions <a href="https://theconversation.com/viewpoints-should-fuel-tax-credits-be-cut-in-the-budget-25988">differ</a> on whether fuel tax credits constitute a “subsidy” or not.</p>
<p>Most fuel users have to pay a fuel excise of 39.5 cents per litre. But businesses can <a href="https://www.ato.gov.au/business/fuel-schemes/fuel-tax-credits---business/">claim exemption from this obligation</a> in certain circumstances. This exemption takes the form of a credit for the fuel tax (excise or customs duty) that’s included in the price of fuel.</p>
<p>These tax breaks include fuel excise exemptions for off-road use of fuel by the mining industry and primary producers. There’s also a partial rebate for large trucks (over 4.5 tonnes), the owners of which pay a road usage charge rather than the excise.</p>
<p>The PBO has estimated that the Australian Greens’ proposal of abolishing the fuel tax credit for all industries except agricultural businesses would increase the budget balance by about A$4.5 billion a year.</p>
<h2>Unpacking the assumptions</h2>
<p>However, it’s worth detailing the assumptions that underpin these calculations.</p>
<p>First, the PBO <a href="https://www.electioncostings.gov.au/costings/ending-subsidies-fossil-fuel-use-and-extraction">says</a> its costing assumes that business fuel usage does not change as a result of the policy. As the goal of a higher tax is to reduce fuel use and pollution, the PBO’s reported estimate will therefore be an overestimate of the revenue gain.</p>
<p>Also, uncertainty about the future means that all such revenue estimates are far from guaranteed. The PBO notes that:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/133325/original/image-20160808-488-s22p9k.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/133325/original/image-20160808-488-s22p9k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/133325/original/image-20160808-488-s22p9k.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=98&fit=crop&dpr=1 600w, https://images.theconversation.com/files/133325/original/image-20160808-488-s22p9k.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=98&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/133325/original/image-20160808-488-s22p9k.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=98&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/133325/original/image-20160808-488-s22p9k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=123&fit=crop&dpr=1 754w, https://images.theconversation.com/files/133325/original/image-20160808-488-s22p9k.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=123&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/133325/original/image-20160808-488-s22p9k.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=123&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.electioncostings.gov.au/costings/ending-subsidies-fossil-fuel-use-and-extraction">Parliamentary Budget Office</a></span>
</figcaption>
</figure>
<p>Many consider the 39.5 cents a litre fuel excise a crude form of user-pays fee to cover the cost of government expenditures on public roads. The revenue raised by fuel excise of <a href="http://www.budget.gov.au/2016-17/content/bp1/download/bp1.pdf">A$17.8 billion</a> and state taxes on motor vehicles of <a href="http://www.abs.gov.au/ausstats/subscriber.nsf/log?openagent&55060do001_201415.xls&5506.0&Data%20Cubes&1EEE90779611B68DCA257F9D001CDB74&0&2014-15&26.04.2016&Latest">A$9.5 billion</a> for 2014-15 more than cover federal, state and local government spending on road construction, maintenance and other related costs.</p>
<p>This is the logical argument put <a href="http://www.minerals.org.au/news/fuel_tax_credits_are_not_a_subsidy">forward</a> by representatives of the mining industry for exemption from the fuel excise. They note that the mining industry builds and maintains its own roads. A similar argument applies for fuel used by primary industry for off-road purposes.</p>
<p>Others <a href="http://fueltaxinquiry.treasury.gov.au/content/backgnd/003.asp">argue</a> that fuel taxes help encourage people to use less of it, and thereby reduce pollution. However, a 39.5 cents per litre tax represents a very large tax per tonne of CO<sub>2</sub> equivalent. If the fuel excise was regarded just as a tax on greenhouse gas emissions, the 39.5 cents per litre represents a tax of <a href="http://www.garnautreview.org.au/pdf/Garnaut_Chapter21.pdf">more than A$150 per tonne of greenhouse gas from the combustion of fuel</a> – several times higher than the Gillard government’s A$24 per tonne carbon price, and the even lower European Union pollution permit price. It is stretching credibility to say the fuel excise is just a tax on pollution.</p>
<p>I’d argue in favour of the position taken in the 2010 <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm">Henry tax review</a>, which <a href="http://taxreview.treasury.gov.au/content/finalreport.aspx?doc=html/publications/papers/final_report_part_1/chapter_12.htm">recommended</a> a roughly revenue-neutral reform package, replacing the current fuel excise and state motor vehicle taxes with a road user charge, a congestion tax and a pollution tax. </p>
<p>With this reform, the mining and agricultural industries would be exempt from the tax components on fuel for road funding and for congestion, but would pay a component for the external costs associated with greenhouse gas emissions.</p><img src="https://counter.theconversation.com/content/62777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Freebairn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Critics of Australia’s fuel tax credits system have pointed to its impact on the budget bottom line, but calculating that cost is far from straightforward.John Freebairn, Professor, Department of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/635912016-08-05T07:28:03Z2016-08-05T07:28:03ZLatest PBO costings won’t hold any parties to account<p>While the Parliamentary Budget Office’s (PBO) <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/2016_post-election_report">2016 post-election report</a> represents a massive undertaking in time and effort, it won’t hold any political party to account, nor provide any additional transparency to the electoral process.</p>
<p>In 2013, then treasurer Wayne Swan announced that the PBO would provide full costings for all election promises made by political parties within <a href="http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=speeches/2013/004.htm&pageID=003&min=wms&Year=&DocType=1">30 days of an election being held</a>.</p>
<blockquote>
<p>“Transparency would be further enhanced if the PBO were to prepare a post-election audit of all political parties, publishing full costings of their election commitments and their budget bottom line 30 days after an election. This will remove the capacity of any political party to try to mislead the Australian people and punish those that do.”</p>
</blockquote>
<p>Who could possibly be against more transparency? Or opposed to holding political parties to account? No doubt Swan thought he was being clever. </p>
<p>Certainly he was hoping to cast the then opposition as being fiscally irresponsible. Swan would soon lose his position as treasurer, but the post-election audit lives on.</p>
<p>In one sense the fact that budgets and budgeting make up a large proportion of political debate is a good thing. Australians intuitively understand that underpinning a flourishing civil society is a sound economy. </p>
<p>To the extent that Australians are not as “relaxed and comfortable” as they were under John Howard, this is due to angst over the economy. The downside of the obsession with budgets and budgeting is that many Australians don’t have the time or inclination to explore the numbers in any detail.</p>
<p>The first problem with the PBO’s latest release is that the material is published after the election. By the 2019 election few voters will be interested in the PBO costings of the last election. </p>
<p>Policy tragics may well want to point to past mistakes, but overwhelmingly voters are forward-looking. After all, Labor was able to win the 2007 election after its 2004 costing disaster. The Coalition won in 2013 after its 2010 difficulties.</p>
<p>To avoid misleading the voters, this information needs to be available before the election. That, of course, is not practicable.</p>
<p>The second problem with the numbers is that they lack context and proportion. For example, we now “know” that the Greens policies would improve the budget bottom line by $8.2 billion over the forward estimates. </p>
<p>The Coalition’s policies improved the bottom line by a mere $1.1 billion, while Labor’s policies would have resulted in a $16.6 billion deterioration. We’re invited to believe that anyone concerned about debt and deficit should vote for the Greens. Well, maybe not. </p>
<p>The Greens proposed tax increases of some $104.9 billion and increased spending of a mere $96.4 billion. There are several problems here. First, it beggars belief that an additional $100 billion of tax revenue could be extracted from the economy with no adverse effects. </p>
<p>For example, the Greens would abolish accelerated depreciation for aircraft, the oil and gas industry and motor vehicles. The costing assumes “there is no change to the overall level or timing of investment as a result of this proposal”. But how plausible is that assumption? This is a general problem with all political budgeting in Australia – the costings simply determine if the numbers are correctly calculated, not whether the policy is plausible or even sensible. </p>
<p>Costing methodology does not investigate the broader macroeconomic consequences of policy proposals. To be sure, there are good reasons for this oversight, but it is a serious limitation of the usefulness of these costing exercises.</p>
<p>Then there is an implementation problem. Pre-election policies are simply a wish-list. There is no point in holding parties to account for pre-election wish-lists when actual policy outcomes are determined by the election itself. </p>
<p>In 2010, Julia Gillard had to promise there would be no carbon tax under her government. Yet after the election, in order to actually form government, she had to break that promise. </p>
<p>Similarly, who would have expected four One Nation senators after the recent election? The costs of any policy will be determined by the horse-trading necessary to pass legislation through the parliament.</p>
<p>To be clear, the ability to undertake plausible and sensible policy costings and prepare coherent budgets is an important part of winning office. Yet those numbers need to be placed in a broader framework and narrative, which is lacking in the PBO report.</p><img src="https://counter.theconversation.com/content/63591/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sinclair Davidson has received funding from the Australian Research Council. He is a senior research fellow with the Institute of Public Affairs and an academic fellow at the Australian Taxpayers' Alliance. </span></em></p>The 2016 post-election report from the Parliamentary Budget Office lacks context and comes too late to inform voters.Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/616442016-06-26T07:45:06Z2016-06-26T07:45:06ZLabor costings pass, but scare tactics detract<p>The ALP have just released their <a href="https://d3n8a8pro7vhmx.cloudfront.net/australianlaborparty/pages/7461/attachments/original/1466908979/160626_Fiscal_Plan.pdf?1466908979">budget costings document</a>. I have mixed feelings - on the one hand it is a necessary feature of “democracy by auction”, while on the other, it is necessary to prevent irresponsible and unaffordable promises hoodwinking the electorate. It is also a game where the government of the day has an inbuilt advantage. </p>
<p>It seems to me that budget costings have to tell a plausible story about policy without being bogged down in gory detail. The ALP failed this test in 2004, while the Liberals failed in 2010. </p>
<p>This time I think the ALP have a good story to tell - I’m just not convinced they tell it well. Quite rightly, they point out that the Tony Abbott-Malcolm Turnbull government have done little to repair the budget damage inflicted by the previous Rudd-Gillard government. </p>
<p>Therein lays the problem - yes, the first two Hockey budgets were poorly conceived and poorly received. That the ALP has managed to convince the electorate that Hockey’s increased spending over Wayne Swan’s last budget somehow represented “unfair” cuts reflects poorly on the government’s communication strategy.</p>
<p>It is true that budget deficits have grown and public debt too. One of the biggest mistakes the Abbott government made was to <a href="http://www.abc.net.au/news/2013-12-04/government-strikes-deal-with-greens-to-scrap-debt-ceiling/5134972">abolish the debt-ceiling</a>. If the ALP wanted to demonstrate its commitment to budget responsibility <a href="http://www.abc.net.au/news/2013-12-10/berg-scrapping-the-debt-ceiling-is-no-victory/5146186">it would commit to re-introducing the debt ceiling</a>. This is one “hard decison” that both the government and opposition could commit to, yet neither does.</p>
<p>An additional criticism of the ALP costings is the petty and trivial examples given in the initial press release. This is “form above substance” politics. The first is to cap at $5000 the cost of managing tax affairs - this excludes small business and is aimed at a very small number of high income individuals. </p>
<p>It will “save” $1.7 billion over ten years (that is $170 million per year or 0.038% of this year’s budgeted expenditure). Then there is the removal of “junk” private health care policies that will “save” $384 million over ten years ($38.4 million per year or 0.009% of this year’s budgeted expenditure). <a href="https://theconversation.com/getting-tax-expenditures-right-is-a-game-of-hypotheticals-24327">These “savings” are highly speculative</a>, but ultimately will make no contribution to budget repair. Why mention them at all? </p>
<p>The ALP does two things well in its budget costings. First it keeps emphasising that it has worked closely with the Parliamentary Budget Office. This office was created expressly for the purpose of providing sound advice to politicians and to allow the electorate to have some confidence in electoral promises. Second, it has invited a distinguished panel of public intellectuals - <a href="https://theconversation.com/labor-costings-alp-deficit-16-5-billion-higher-over-the-budget-period-61643">Robert Officer, Michael Keating and James MacKenzie</a> to evaluate their costings and assumptions.</p>
<p>Importantly for our purposes the panel concludes:</p>
<blockquote>
<p>All of the costings in Labor’s Budget Plan are of a similar quality as budget estimates generally, and therefore represent a reasonable basis for assessing the net financial impact on the Commonwealth Budget.</p>
</blockquote>
<p>Now make of that what you will - <a href="http://press.anu.edu.au/node/1277/download">the Opposition’s costings are just as good or bad as the government’s costings</a>. In one sense that is very pleasing because we can then focus on the substance of the policies and abstract from the numbers themselves. Mind you, the ALP doesn’t reveal its assumptions, it provides long lists of budget estimates (so see for yourself that despite criticising the government on the NBN the ALP won’t be spending anymore on it than the government will). </p>
<p>What is worrying is that both the government and the Opposition have a 10 year plan, and both plan to return the budget to balance in the same year, 2020-21. In other words, a long time from now - after the next election. That is simply not plausible.</p>
<p>The other difficulty is that the policy costings are long on slogans, long on criticism of the government and short on actual budget repair. </p>
<p>To be fair, the Abbott-Turnbull government is easy to criticise. To be even fairer, the Abbott-Turnbull government has failed in precisely the same (economic) area where the Rudd-Gillard government failed. The Shorten opposition don’t address that collective failing anywhere in their budget costings. Why will the ALP succeed now in its economic management, <a href="http://www.theaustralian.com.au/national-affairs/opinion/labor-treasurers-promise-now-surplus-to-requirements/story-e6frgd0x-1226541448399">when it failed so comprehensively in its last term of government?</a> </p>
<p>The ALP tells us it has a six point plan:</p>
<ol>
<li>Investing in people </li>
<li>Building Australia </li>
<li>Driving investment in new industry and renewables </li>
<li>Supporting innovation and startups</li>
<li>Helping small business</li>
<li>Budget repair that’s fair</li>
</ol>
<p>That sounds like the long version of “Jobs and growth”. It is here that the ALP has to engage in scare tactics. <a href="https://www.theguardian.com/australia-news/2016/jun/22/outsourcing-payments-is-not-medicare-privatisation-says-new-ama-head">It is not clear what ‘privatising’ Medicare even means</a>. How are we going to spend <em>even more</em> money on education - last time the ALP were in office we were tearing down perfectly good school halls and then rebuilding them. Let’s rather <a href="https://www.cis.org.au/commentary/articles/improve-education-but-dont-fund-more-waste">focus on increasing the quality of education before increasing the quantity of money thrown at education</a>. So the scare tactics are not serious policy work, they are transparent tactics to detract from the similarity in overall policy. </p>
<p>Of course in a democracy we expect <a href="http://www.nytimes.com/2010/02/07/business/economy/07view.html?_r=0">the government and opposition to converge towards similar policies</a> - and that, I think, is what is happening here. Very similar policies and costings that are as good or bad as each other, however, don’t suggest that a change in government is warranted.</p>
<p>So we have a competent attempt at policy budget costing - that must be good for the democratic process. What is missing, to my mind, is a competent attempt to grapple with the actual budget deficit. Mind you, they are hardly alone in that failing.</p><img src="https://counter.theconversation.com/content/61644/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sinclair Davidson is a professor in the School of Economics, Finance and Marketing at RMIT University. He is also a senior research fellow at the Institute of Public Affairs and an academic fellow at the Australian Taxpayers' Alliance.
He has previously been funded by the Australian Research Council.
He lodged a postal vote for the 2016 federal election prior to writing this op-ed.</span></em></p>Labor’s policies, costed by the Parliamentary Budget office, pass scrutiny - but like the Coalition, fail the test of real budget repair.Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/610932016-06-20T13:43:29Z2016-06-20T13:43:29ZWho watches the watchmen? Lessons from Uganda’s budget office<figure><img src="https://images.theconversation.com/files/127104/original/image-20160617-11110-96p8d5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Parliamentary budget offices are considered international best practice – they are intended to bring more honesty to the budget process.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Parliamentary budget offices are meant to be watchmen that help parliamentarians by providing them with solid budget analysis. They are supposed to provide <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1540-5850.2012.01018.x/abstract">honest budget numbers</a> based on nonpartisan evaluations. To do this they must maintain a pristine reputation free from corruption, political dealings or criminal activity.</p>
<p>There are <a href="http://www.oecd-ilibrary.org/governance/a-study-on-compilation-and-improvement-of-indices-for-legislative-budgetary-institutions_budget-14-5jrw6591frbw;jsessionid=brdk313ailt1o.x-oecd-live-03">nearly 60</a> parliamentary budget offices around the world, out of which a handful are in Africa, including <a href="http://static1.1.sqspcdn.com/static/f/1349767/21298723/1355837762980/UGANDA+-+Parliamentary+Budget+Office.pdf?token=hNr1GPYSQprOsS54h9dFk0y7CNQ%3D">Uganda</a>, <a href="http://www.parliament.go.ke/component/k2/item/35-budget-office">Kenya</a> and <a href="https://pmg.org.za/committee-meeting/17328/">South Africa</a>.</p>
<p>These offices are considered international best practice in budgeting because they add an element of nonpartisan economic analysis that helps parliaments to study complex budget issues with more clarity and accuracy. As such, they are intended to bring <a href="https://theconversation.com/what-africa-can-learn-from-australia-about-a-charter-for-budget-honesty-60116">more honesty</a> to the budget process.</p>
<p>So what happens if a parliamentary budget office were itself to become the subject of corrupt practices? What if the watchman himself needs to be watched?</p>
<p>In 2015 the Ugandan Parliamentary Budget Office’s head, Samuel Wanyaka, was <a href="http://www.observer.ug/news-headlines/39005-parliament-budget-director-sentenced-to-10-years-for-embezzling-shs-882m">sentenced on three counts</a> of embezzlement, false accounting and abuse of office. Uganda’s Anti-Corruption Court found that he had embezzled 822 million shillings (3.7 million rand) meant for duties of the office. Nearly 80% of this was stolen and the remainder left unaccounted for. He has been ordered to refund the money and is now concurrently serving ten years for these three sentences.</p>
<p>This event could easily be dismissed as a minor example of corrupt practices in public service, and was indeed largely ignored by international budget experts and development partners. But it raises two important points about budget accountability in developing countries that need to be emphasised.</p>
<h2>Reputational Capital</h2>
<p>My previously <a href="http://www.revparl.ca/36/3/36n3e_13_chohan.pdf">published research</a> has looked at the importance of cultivating stakeholder trust by parliamentary budget offices, particularly by looking at Canada’s budget office. The record is mixed. Each office has attained a different level of success in cultivating its key stakeholders of parliament, the executive, the media and the public.</p>
<p>But, in each case, the parliamentary budget office has had to lean on <em>reputational capital</em>. This is to say that it has had to establish a reputation among its stakeholders of wielding intellectual rigour in a nonpartisan way. </p>
<p>My research has found that the process of cultivating such reputational capital is by no means easy. There is little room for failure on the office’s part because institutions that are far more powerful have incentives to see the office falter.</p>
<p>What has happened in the case of Uganda is that its Parliamentary Budget Office has suffered from a very damaging impact to its own reputation due to the conviction of its director. Trust in the institution has been eroded. MPs will have a very difficult time confiding in the office – at least not without the formation of strong internal controls and robust oversight.</p>
<h2>Who will Watch the Watchmen?</h2>
<p>This need for strong internal controls and monitoring of the office itself raises a second important point: who will watch the watchmen? Who will oversee the oversight bodies?</p>
<p>Since the days of ancient Rome, <a href="https://stuff.mit.edu/afs/athena/course/21/21h.403/www/local/juvenal.6-7.pdf">satirists</a> and philosophers have wrestled with the idea that those who are at the forefront of accountability must themselves be accountable to someone.</p>
<p>The case of Uganda raises a broader question: are developing countries really ready for the sort of tough oversight and rigorous budget reform that a parliamentary budget office is meant to offer?</p>
<p>It might useful to remember why the office was first instituted in Uganda.</p>
<p>Created in 2001, the <a href="http://static1.1.sqspcdn.com/static/f/1349767/21298723/1355837762980/UGANDA+-+Parliamentary+Budget+Office.pdf?token=hNr1GPYSQprOsS54h9dFk0y7CNQ%3D">Ugandan experiment</a> was avant-garde even by developed country standards. <a href="http://www.pbo-dpb.gc.ca/en/about">Canada’s</a> Parliamentary Budget Office was formed in 2006 and <a href="http://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_budget_office">Australia’s</a> only in 2012. Why was Uganda so far ahead?</p>
<p>There are two important factors at play here: local political circumstances and external pressures. </p>
<p>First, the Ugandan political climate circa 2001 was peculiar in that it was a system of “<a href="https://openknowledge.worldbank.org/bitstream/handle/10986/6547/456270PUB0Box3101OFFICIAL0USE0ONLY1.pdf?sequence=1">no political parties</a>”. This meant that the idea of an “opposition” movement was far more amenable to the sort of heavy-duty reforms that a parliamentary budget office entails.</p>
<p>Second, Uganda has had a longstanding relationship with multilateral development agencies such as the World Bank, which pushed it to go ahead with its parliamentary budget office experiment.</p>
<p>Scholars have chosen to describe this sort of international influence in two different ways, depending on their political outlook. On one hand, it can be seen as part of Uganda’s openness to international expert advice. On the other, it can be seen as part of the enormous <a href="http://www.tandfonline.com/doi/abs/10.1080/03056244.2010.484525">neoliberal pressure</a> on Uganda’s institutions.</p>
<p>Given the corruption scandal against the office’s director, it seems the experiment has suffered from design shortcomings, specifically in relation to the internal oversight of funds within it.</p>
<h2>Moving Forward</h2>
<p>In 2013, I <a href="http://www.revparl.ca/36/3/36n3e_13_chohan.pdf">interviewed</a> Wanyaka as part of a budget experts’ conference in Montreal, Canada. He was not under any criminal investigation at that time. He had mentioned that there was a certain amount of precarity with respect to the Ugandan Parliamentary Budget Office. He mentioned that there was talk of repealing the Ugandan Budget Act’s provisions that created the office.</p>
<p>Not surprisingly, he did not mention any issues of weak internal controls or its susceptibility to corrupt practices. However, it is the internal issues of the office that have led it to be most at risk.</p>
<p>Internal oversight needs to be instituted within all parliamentary budget offices. This is true in both developed and developing countries. But it is also important to ensure there are proper design features, such as correct reporting relationships, within the broader accountability framework for the budget. </p>
<p>For example, an office can be brought into a reporting relationship with the <a href="http://www.austlii.edu.au/au/legis/nsw/consol_act/pboa2010269/">Public Accounts Committee</a>, as is done in New South Wales, Australia. Alternatively, the auditor-general or a standing committee on finance can be used as well.</p>
<p>In any case, it is important to properly situate the parliamentary budget office within the broader accountability framework of a country, with robust internal controls to monitor funds, and a sufficient budget to engage in necessary oversight duties. No single legislative budget office in the world has gotten the equation perfectly right as of yet, and that may just be because these institutions are comparatively new.</p>
<p>However, the scandal at Uganda’s Parliamentary Budget Office shows that figuring out the proper roles, functions, internal controls, and capacities is more pressing than ever, especially in developing country contexts where budgeting can play a far greater role in <a href="http://personal.lse.ac.uk/wehner/obi.pdf">enhancing economic development</a>.</p><img src="https://counter.theconversation.com/content/61093/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Usman W. Chohan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The scandal at Uganda’s Parliamentary Budget Office shows that figuring out the proper roles, functions, internal controls, and capacities is more pressing than ever.Usman W. Chohan, Doctoral Candidate, Policy Reform and Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/591872016-05-10T13:02:41Z2016-05-10T13:02:41ZAspiring treasurer Chris Bowen looks fit for purpose<p>Chris Bowen presented at the National Press Club on Tuesday as a well-prepared alternative treasurer, who could slot into the real job very easily if July 2 brought the chance.</p>
<p>“Neat” is the word that came to mind about Bowen’s performance. His critique of the government was strong but not over the top; he firmly linked Labor’s large school spending plan to its economic story; above all, he sounded responsible.</p>
<p>Bowen has done much of the work on Labor’s robust tax and other economic policies, and defends them with confidence. He also was treasurer, albeit briefly, in the last days of Labor, and that experience shows. If Labor won, Bowen would be in the unusual position of having already been road-tested in the job.</p>
<p>Despite any of this, Bill Shorten and Bowen face a big challenge to convince people they are up to the economic management task. In a March Newspoll Malcolm Turnbull had a commanding lead over Shorten as the one more capable of managing the economy – 54-20%.</p>
<p><a href="http://www.essentialvision.com.au/trust-to-handle-the-economy-2">In Tuesday’s Essential poll</a>, when people were asked who they would trust most out of Scott Morrison and Bowen to handle Australia’s economy, 31% said Morrison, 20% Bowen, and 49% didn’t know. Morrison had improved from plus three to plus 11 since April.</p>
<p>This was regardless of more people disapproving than approving of the budget (29-20%), and 32% saying it made them less confident in the government’s ability to manage the economy while only 21% felt it made them more confident. Just to confuse the picture further, people liked many of the budget’s individual measures. For example 62% approved capping tax concessions for those with more than A$1.6 million in superannuation, and 50% gave a tick to reducing company tax.</p>
<p>In his Tuesday speech Bowen highlighted the need to preserve Australia’s AAA credit rating – which Moody’s has recently brought into question, suggesting it was not just spending but revenue that needs to be addressed.</p>
<p>Labor’s potential vulnerability is its spending program. Bowen confronted this directly. “I don’t see budget repair and defending the AAA credit rating as a competing objective with investment in schools, infrastructure and hospitals,” he said. “I see them as complementary and essential parts of a real plan for economic growth.”</p>
<p>Underlining the importance of the AAA rating, he said a loss of it from one or all of the three agencies would increase the cost of government borrowing. “Now as a progressive alternative treasurer who wants to fund investments in schools, hospitals and infrastructure, I want to have that money available, not being wasted on payments to bond holders.”</p>
<p>He said a Labor administration would have an economic statement (aka mini-budget) within its first three months “to reflect the new government’s priorities and approach”.</p>
<p>As part of the new way under Labor, it would remove the preparation of the economic forecasting for the budget from Treasury, and have it done by the Parliamentary Budget Office (PBO), a body that at the moment mostly does costings at the request of the opposition, Greens and other minor players.</p>
<p>Treasury’s forecasts and projections are perennially questioned and Bowen as well as some commentators doubt those in this year’s budget. Often Treasury gets the numbers wrong. Sometimes critics see the forecasts as influenced by the government of the day. </p>
<p>Bowen said that having the PBO do this work “will ensure that economic forecasts are undertaken at arm’s length from government, giving the public more confidence in the budget process”. This sort of system operates in Britain where the Office for Budget Responsibility does the forecasts.</p>
<p>The PBO is a highly credible body, which has done a terrific job and removed much of the dispute about costing of election promises. It’s also true that the Bowen change would remove the grounds for accusations of political fiddling with the figures.</p>
<p>On the other hand, the problem that there is perceived political interference could surely be addressed by a treasurer making a firm declaration that there would be no massaging of Treasury figures.</p>
<p>Economist Saul Eslake describes the Bowen proposal as “a bit of a gimmick”, saying that “there is no reason why [the PBO’s] forecasts would be any better or worse than Treasury’s”.</p>
<p>To cope with the extra task the PBO would have to be expanded – many of the additional staff would probably be drawn from Treasury.</p>
<p>Labor’s economic team is well qualified for its assault on the budget. It includes former economics professor Andrew Leigh, who is shadow assistant treasurer, and Jim Chalmers, who worked for former treasurer Wayne Swan.</p>
<p>Leigh is chipping at the political salience of one important budget number, the estimate that the ten-year tax package would produce 1% growth in Australia’s GDP. Drawing on some Treasury modelling, Leigh is arguing that little of the claimed boost to growth will flow through to households.</p>
<p>On the modelling, a reduction in company tax from 30% to 25% produces a 0.1% increase in household welfare. This is because much of the benefit goes to foreign shareholders.</p>
<p>“If the proposition being put to Australian households is ‘you’ll get an extra 0.1% in exchange for not being able to fund your hospitals and schools’, I’m not sure many Australians would find that an attractive deal, particularly if it came along with a downgrade from Moody’s,” Leigh told Sky – in a combination of populist and high-end economics.</p>
<iframe src="https://www.podbean.com/media/player/3b489-5f1958?from=yiiadmin" data-link="https://www.podbean.com/media/player/3b489-5f1958?from=yiiadmin" height="100" width="100%" frameborder="0" scrolling="no" data-name="pb-iframe-player"></iframe>
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Chris Bowen presented at the National Press Club on Tuesday as a well-prepared alternative treasurer, who could slot into the real job very easily if July 2 brought the chance. “Neat” is the word that…Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/572162016-04-06T03:51:18Z2016-04-06T03:51:18ZHigher education policies could result in big increase to federal debt: experts respond<figure><img src="https://images.theconversation.com/files/117596/original/image-20160406-29010-1fw43bm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">$4 billion of student loan debt is likely to never be repaid by 2025.</span> <span class="attribution"><span class="source">from www.shutterstock.com</span></span></figcaption></figure><p>The government’s proposed policies to make <a href="https://theconversation.com/budget-should-give-universities-more-flexibility-on-student-contributions-56733">subsidy cuts to higher education</a> and allow universities to set their own fees will result in big increases to federal debt, warns a <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/research_reports/Higher_Education_Loan_Programme">report released</a> by the Parliamentary Budget Office (PBO).</p>
<p>The report, looking into the impact of the cost of the Higher Education Loan Program (HELP) on the budget, shows the overall cost of the HELP is increasing rapidly due to the uncapping of student places, which allows universities to recruit as many students as they wish.</p>
<p>By 2025, the cost of HELP will rise by A$9.3 billion. This is largely fuelled by higher interest rates and an increase in unrepaid debt.</p>
<p>Around $4 billion of student loan debt is likely to never be repaid by 2025. The concessional cost of the interest on the loans is forecast to climb from $1 billion to $2.4 billion.</p>
<p>With university fee deregulation still on the cards, and HELP costs continuing to escalate, is government bearing all the risk?</p>
<p>The Conversation spoke to experts about the report’s findings and asked them to offer their opinion on the biggest challenges the higher education sector faces.</p>
<hr>
<h2>Fee deregulation threatens to increase amount of unrepaid debt</h2>
<p><em>Timothy Higgins, associate professor in actuarial studies in the Research School of Finance, Actuarial Studies and Statistics, Australian National University, says:</em></p>
<p>The report adds valuable information to the debate, but policymakers should be cautious when interpreting the results.</p>
<p>The projections assume an average 40% increase in fees followed by an annual 2% real increase as a consequence of fee deregulation. The report also presents sensitivity analysis to demonstrate the short-term impact of different rates of fee increase on the underlying cash balance. </p>
<p>But what happens if the initial 40% increase turns out to be 60% instead? What is to stop a course provider from charging excessive fees? Also, what is the impact of fee uncertainty on long-term doubtful debt and concessional interest costs? </p>
<p><a href="http://www.mitchellinstitute.org.au/reports/feasibility-and-design-of-a-tertiary-education-entitlement-in-australia/">Research shows</a> that modest changes in HELP fees could have a considerable impact on the percentage of doubtful debt. </p>
<p>The high, albeit uncertain, projections in the PBO report demonstrate the risk to the sustainability of HELP if deregulation proceeded. </p>
<p>HELP was designed to have unpaid debt, but fee deregulation threatens to increase the magnitude and proportion of doubtful debt to unsustainable levels. There are sound arguments for <a href="http://grattan.edu.au/wp-content/uploads/2016/03/968-HELP-for-the-future.pdf">HELP reform</a>, but fee deregulation needn’t be one of them. A solution is to simply not deregulate. </p>
<p>In addition to limiting HELP costs for both students and taxpayers, retaining a price cap on fees would also eliminate the risk of provider price gouging.</p>
<h2>The report is based on assumptions that might not come to pass</h2>
<p><em>Geoff Sharrock, program director, LH Martin Institute, University of Melbourne, says:</em></p>
<p>The report estimates that, due to a mix of factors, the annual cost of HELP loans to the government will rise more than six-fold over the next decade, to $11.1 billion in 2025-26.</p>
<p>This suggests that the current blend of demand driven enrolments and HELP scheme settings needs an overhaul.</p>
<p>The report projects rising levels of students enrolling in courses either partly or fully funded by HELP loans. It says that bachelor degree enrolments grew by two thirds from 2010 to 2015, and are projected to rise further, by a third from 2015 to 2026, to almost 700,000 full-time places. It notes that Vocational Education and Training enrolments have grown hugely in the past few years, but that better controls will flatten growth there.</p>
<p>It projects rising bachelor degree fees (by more than 40% on average) if the government’s proposed subsidy cuts and fee deregulation come to pass.</p>
<p>The report is very technical and also helpfully transparent in its assumptions.</p>
<p>Two of those assumptions might be queried, to lower the total cost rises it projects.</p>
<p>One is the 40% increase in fees it expects universities to adopt just to recover losses from proposed subsidy cuts; the 20% cut proposed in 2014 was estimated to need a 30% fee rise offset, although under full fee deregulation a wider spectrum of prices rises beyond cost recovery can be expected.</p>
<p>The other assumption is the interest rate subsidy cost, based on a projection that government borrowing costs rise from 3% to 6% over the next decade. Despite the experience of the last two decades, when a 6% rate was common for Australian government borrowing, here it is possible that the coming decade will see continuing low borrowing rates for Australia in a low-interest global economy.</p>
<h2>HELP system needs to be rethought and redesigned into a single scheme</h2>
<p><em>Peter Noonan, professor of tertiary education policy in the Mitchell Institute, Victoria University, says:</em></p>
<p>The HELP system needs to be rethought and redesigned into a single scheme across the whole tertiary education system rather than through piecemeal changes to the existing schemes. We need a scheme that has broader coverage but is also sustainable. This requires some fundamental changes. </p>
<p>Student fees – supported by income-contingent loans – need to be linked to a benchmark price for different qualifications with government course subsidies and student fee levels linked to that price.</p>
<p>Cuts in course subsidy levels and increased student fees may be a false saving if the government has to write off an increasing level of debt. Great care has to be taken in allowing tertiary institutions and providers to set their own fees where prices significantly exceed costs and returns to students. </p>
<h2>Lowering repayment threshold would generate more money</h2>
<p><em>Ittima Cherastidtham, senior associate, higher education, Grattan Institute, says:</em></p>
<p>The report’s projections of HELP lending are probably too high, because they are built on assumptions that fees would be deregulated and the Commonwealth Grant Scheme cut. But so far the government has been unable to get these changes through the Senate. Nevertheless, these projections provide valuable insights. </p>
<p>This year HELP lending is expected to be about $10 billion. It’s a big figure, yet its financial impact on the budget is not transparent. </p>
<p>HELP’s largest cost – doubtful debt, which is debt that is likely never to be repaid – is not reflected in the budget’s fiscal balance until a debtor dies. </p>
<p>Doubtful debt represents about a <a href="http://grattan.edu.au/wp-content/uploads/2016/03/968-HELP-for-the-future.pdf">quarter of outstanding loans</a>. Yet because only 0.35% of people who have had HELP debt have died without paying, large costs will flow to the fiscal balance in coming decades. </p>
<p>In other words, doubtful debt is an intergenerational issue. An educated workforce produces benefits for future generations. But the lack of transparency about HELP’s budget impact prevents an informed discussion of how much of these costs can be fairly passed on to future generations. </p>
<p>Government can do more to reduce HELP costs. Grattan Institute’s recent report, <a href="http://grattan.edu.au/wp-content/uploads/2016/03/968-HELP-for-the-future.pdf">HELP for the future</a>, argues that current HELP repayment thresholds of $54,126 are too generous. <a href="https://theconversation.com/is-lowering-the-student-loan-repayment-threshold-fair-for-students-56814">Reducing them to $42,000</a> would increase repayments by $500 million a year. </p>
<hr>
<p><em>What do you make of the report’s findings? Share your thoughts in the comments section below.</em></p><img src="https://counter.theconversation.com/content/57216/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Geoff Sharrock works at a public university which derives substantial income from HELP loans, and which would benefit if fee deregulation allowed fee increases financed by HELP loans.</span></em></p><p class="fine-print"><em><span>Peter Noonan is a Professorial Fellow in the Mitchell Institute at Victoria University. The University derives revenue from HELP schemes.</span></em></p><p class="fine-print"><em><span>Ittima Cherastidtham and Timothy Higgins do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Academic experts respond to the latest report by the Parliamentary Budget Office on the impact of student loans on the budget.Timothy Higgins, Associate Professor, Research School of Finance, Actuarial Studies & Statistics, Australian National UniversityGeoff Sharrock, Program Director, LH Martin Institute, The University of MelbourneIttima Cherastidtham, Senior Associate, Higher Education Program, Grattan InstitutePeter Noonan, Mitchell Professorial Fellow, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/347112014-11-28T00:14:21Z2014-11-28T00:14:21ZProductivity could trump the iron ore price, but who’s counting?<p>In the wake of a falling iron ore price that has cut his personal fortune by more than A$2 billion, Andrew Forrest has remained unperturbed, saying: “I didn’t count on the way up, and I’m not counting now”. If only Joe Hockey could say the same thing.</p>
<p>Unfortunately for Hockey, the Coalition and the Australian public, previous governments did count on the way up, and that will force all of us to count on the way down. As iron ore prices, the terms of trade and hence tax collections rose, government spending under the Rudd-Gillard-Swan regime ballooned.</p>
<p>If that all sounds pretty predictable, there’s one important detail that might surprise you. According to the <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/reports/The_sensitivity_of_budget_projections_to_changes_in_economic_parameters">report</a> released Wednesday by the non-partisan Parliamentary Budget Office, the biggest swing factor in the budgetary outlook is not the terms of trade, but labour productivity. And it is arguably the factor that’s hardest to predict.</p>
<p>First: the budget bottom line. The PBO predicts the budget back in the black in 2018-19 and generating a surplus of 1.4% of GDP in 2024-25. Along with that, net debt — the amount the government owes minus what is owed to it — is projected to fall from 13.9% of GDP in 2014–15 to 0.7% of GDP in 2024–25.</p>
<p>Taken at face value this is rather reassuring. No big dramas, no big blowouts. Sure we run deficits for a few more years but net debt stays very low by historical standards and is essentially zero a decade from now.</p>
<p>But it is in the wonk paradise that lurks beneath those bottom-line numbers where the real story lies.</p>
<h2>What will really affect the deficit</h2>
<p>The PBO report points to three main factors that affect projected deficits or surpluses: labour participation (how many people over the age of 15 work), labour productivity (how much output labour creates per hour) and the terms of trade (the prices we get for our exports relative to the prices we pay for our imports).</p>
<p>The PBO base case assumes labour productivity grows at its historical average rate of 1.5% per annum. But it was slower than this in the 1980s and the 2000s – with the exception being the 1990s, which witnessed a massive information technology revolution. </p>
<p>A half-percentage-point bump in labour productivity growth about the historical average would add 1.1% to the 2024-25 surplus, but the mirror opposite is basically true if it is slower. This is a big range of possible outcomes and — as the report itself says — the risk appears to be more on the downside than the upside.</p>
<p>On the other hand, a 10% movement in the terms of trade has a 0.5% impact on the budget bottom line in 2024-25. This is not small, but it is basically a $10 billion annual reduction in receipts by 2024-25 — $7.9 billion due to lower company tax receipts from mining companies.</p>
<p>What the report doesn’t emphasise is that a big part of what keeps revenues growing in those projections is bracket creep — the unsavoury and uneconomic fact that the thresholds for increased personal income tax rates are stuck in nominal terms. (Independent Economics, which provides the macroeconomic model the PBO uses, discusses this on its <a href="http://www.independenteconomics.com.au/Latest.aspx">website</a>.) So as time passes and incomes grow, so do the number of people who pay very high marginal tax rates.</p>
<h2>Tax crunch</h2>
<p>There’s a political problem with this. It isn’t sustainable to have a huge chunk of the population paying the highest marginal tax rate, so something will have to give politically. Moreover, personal income taxes are among the most distorting and inefficient taxes — they negatively change how much people work by quite a lot relative to how much revenue they raise.</p>
<p>In that sense, the PBO report, which understandably assumes no policy adjustments, paints too rosy a picture of revenue growth. And that gets us to the heart of the budgetary issue.</p>
<p>The celebrated economist John Maynard Keynes famously said “in the long run we are all dead”. Well yes, that’s true. But it doesn’t mean we shouldn’t worry about the long run. As a very fine mathematician himself, Keynes might equally have observed that 1.01<sup>100=2.7.</sup> Put differently, a 1% gap between taxes and outlays, every year for a century, leads to outlays being 2.7 times as large as taxes.</p>
<p>Temporary shocks to government revenues, or outlays, don’t compound. Structural increases in spending do. That’s why I (and most other numerate commentators) have repeatedly said we don’t have a “budget crisis” and we certainly don’t have a debt crisis. </p>
<p>What we do have is a host of spending commitments that are likely to grow faster than tax revenues. And when you compound those for long enough then, as they say in show business: “Boom goes the dynamite!”</p>
<h2>Debt debate</h2>
<p>For all the flack he’s copped, Joe Hockey clearly gets this. That’s why he has emphasised aged pension reform and indexation of petrol excise. OK, his execution could have been better, but partial credit where partial credit is due.</p>
<p>And it’s worth noting that this lies in stark contrast to the current prime minister who repeatedly goes on about the (tiny) amount the government pays in interest on the (very small) debt it has. One of the PM’s advisers with business experience needs to tell him that debt is not immoral. And that when you can get a bigger return on investment than the cost in interest — like on important infrastructure spending — debt is a good thing.</p>
<p>Household finances may well be about credit card debt and mortgage payments — but government finances are just not. </p>
<p>The PBO report reminds us of this difference in viewpoints. It reminds us that structural problems require structural solutions, and that Australia has time to implement them. But if we don’t have the political will or efficacy to do so, then one day we really will have a budget crisis.</p><img src="https://counter.theconversation.com/content/34711/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden in an ARC Future Fellow.</span></em></p>In the wake of a falling iron ore price that has cut his personal fortune by more than A$2 billion, Andrew Forrest has remained unperturbed, saying: “I didn’t count on the way up, and I’m not counting…Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.