View from The Hill

Budget numbers fall apart but Bowen says surplus target date stays

Chris Bowen has a tough job selling the government’s economic statement. AAP/Alan Porritt

The prospect of a surplus has long disappeared into the distant future but it continues to be a political corset.

The government is facing what seems a enormous challenge in its economic statement next week to finance a new big hole in its revenue, plus the Rudd PNG plan for boat arrivals. But Treasurer Chris Bowen reaffirmed today that he is sticking by the May budget timetable - back into the black by 2016-17. Or at least that’s the “intention”. (The budget had a projected $6.6 billion surplus for 2016-17.)

Bowen didn’t mention the 2015-16 year in which the budget is supposed to be in “balance” ($800 million surplus) but his office said that was covered by his undertaking too.

The Australian Financial Review has speculated the revenue hole over four years is about $20 billion. Even something less would be very difficult to fill with savings. But the government clearly believes that to retreat from the surplus path would be too damaging to its economic credibility.

The opposition is trying to discredit all the coming numbers, even those with no political fingerprints on them. Shadow treasurer Joe Hockey went to the extreme of saying the opposition would not trust the Treasury/Finance Department’s Pre-election Economic and Fiscal Outlook issued early in the formal campaign.The PEFO system was set up by the Howard government to ensure accurate figures are available in the run up to an election.

But Hockey said: “Why is the government releasing a comprehensive economic statement just a few days before the Pre-election Fiscal Outlook? Quite clearly, it is about trying to bully the Treasury into a fixed set of numbers”.

In fact, it’s the numbers that are “bullying” the government. It knows they will come out – its own statement is to pre-empt them with its decisions, and try to frame them in some way that minimises the damage.

The numbers in the government’s statement and PEFO are likely to be similar because they will be released close together – unless Rudd ignores advice and goes to a very late election.

For Hockey to suggest that PEFO will be contaminated by government bullying is foolish. The secretaries of the two departments are aware of their responsibilities and are both public servants of integrity. At a more crass level, they also know they could be working for the Coalition soon.

Hockey could more usefully be asking how the revenue figures in the May budget were so wrong. The answer by those who would defend Treasury’s performance is that when you look at the total amount of revenue over four years – about $1.5 trillion – a $20 billion adjustment is not so great. Nothing dramatic has happened since the budget but there have been some changes, especially China’s growth softening and some fall in commodity prices (although the fall in the dollar helps revenue), and fresh data has become available.

So how large the hole seems depends on where you are viewing it from. From the politicians’ vantage point, it’s huge.

It’s hard to think the government’s economic statement won’t provide a field day for the opposition, with all the savings it will have to contain.

But the Coalition will soon have its own problem with numbers, when it releases its costings in the campaign. Hockey claims “our numbers will be more reliable than anything the government publishes”, which is just hyperbole. But they will need to be as good as the government’s.

He says the opposition is using the Parliamentary Budget Office, state government colleagues and independent advisers for costings. Last election the Coalition got into trouble with its figures – especially afterwards, when they were officially costed as part of the crossbench negotiations. It needs to err on the conservative side.

Meanwhile, trying to tie up loose ends before the campaign, Tony Abbott has made another concession to reality, saying that if the Senate won’t allow a Coalition government to delay the Gonski plan, deals entered into by Labor will be honoured for the 2014 school year. The Coalition would then seek to “work out how to get the model right”. (There will be a new Senate from mid-2014.)

This is sensible pragmatism. The thought of trying to claw back money from, say NSW, for 2014 was entirely wrong-headed and politically counter-productive. The independent and Catholic schools systems have both endorsed the Better Schools program, so Abbott was throwing their funding into uncertainty.

(The other issue in which Abbott accepted reality was when, in his budget reply this year, he embraced the government’s carbon compensation package. That meant he did not have to produce his own competing tax and welfare package.)

The new Abbott line also gives the Gonski reforms a better chance of long term survival if there is an Abbott government. Apart from the fact that the new Senate might also be unwilling to alter them, once they were operating those states that have signed up would have an even stronger interest in keeping the new system, which they judge benefits them, and there would be more incentive for the remaining states to join.

In the more immediate term, the government’s attempt to woo Victoria into the system continues, with another day of officials’ negotiations today. Federal minister Bill Shorten dropped in but no relevant Victorian politicians were available. “The gap has narrowed - however, there remains some way to go and work will continue over the weekend,” a spokeswoman said last night. It’s not the first time we’ve heard that line.