The Coalition has released the remainder of its costings, one-and-a-half days before the election, outlining a plan to fund an A$11.5 billion infrastructure package by cutting foreign aid growth by $4.5 billion.
The fiscal budget impact of coalition policies, signed off by the Independent Costings Review panellists, Geoff Carmody, Len Scanlon and Peter Shergold, says it has an additional A$9 billion in savings that will improve the budget line by A$6 billion over the four years and reduce government debt by A$16 billion.
News story: Coalition: aid cuts to pay for infrastructure
As expected, the Coalition will cut the public service by 12,000 through natural attrition to save $5.2 billion. It has already previously outlined savings by abolishing the carbon tax and mining tax that will help pay for its $9.8 billion paid parental leave scheme.
In today’s costings, the Coalition pledged to increase its proportion of joint road funding to 80%, with a 20% contribution from the states, up from its current rate of 50/50 and outlined a list of significant road and rail projects.
We asked our experts to respond:
Fabrizio Carmignani, Associate Professor, Griffith Business School at Griffith University:
After announcing $31 billion in savings earlier in the campaign, the Coalition today announced a further $9 billion saving package. According to shadow treasurer Joe Hockey, the fiscal plan of the Coalition will lead to an improvement of $6 billion in the budget balance and a reduction of $16 billion in Australian debt. Hockey also announced a significant boost to investment in infrastructure development, while stating that there will be no cuts to education and health.
There are two considerations that I believe are relevant. First, the announcement of today seems to confirm that the Coalition disregard cyclical fluctuations in designing its fiscal policy. This is a mistake in view of the fact that fiscal policy multipliers in Australia are significant. Fiscal policy should be run counter-cyclically, as the Labor governments have done.
I expected some sort of acknowledgement of this basic principle, but instead Hockey seems to be more concerned about balancing the budget, as if a balanced budget where in itself an objective of fiscal policy. Hockey spoke about a “budget crisis”, therefore implying that the increase in deficit observed since 2008 is intrinsically bad. As I have written previously, I think that this interpretation of what constitutes good fiscal policy is plain wrong.
It was instead a good thing for Australia that the Labor governments used the budget to sustain the economy at a time of global crisis. If the deficit had not increased in the aftermath of the GFC, Australia would have not avoided the recession. Conversely, the increase in deficit helped avoid the recession and maintain a positive rate of employment growth. In other words, the deficit was a sign of good fiscal policy.
Second, among the various measures announced today, one that particularly stands out is the $4.5 billion cut in the growth of foreign aid. It will be embarrassing, to say the least, for Tony Abbott – if elected prime minister – to chair the G20 next year after having won the elections with a platform that has in cuts to foreign aid one of its key points.
John Quiggin, Professor, School of Economics at University of Queensland
It’s unsurprising that the Coalition costings have been concealed until the last possible moment. It would not stand to more than a day or two of scrutiny, but it doesn’t have to. Among the obvious problems are the failure to cost key policies, the effective abandonment of the 5% emissions reduction target and bogus assumptions about an economic dividend from the removal of the carbon price. The endorsement of this deeply flawed process by Peter Shergold, Geoff Carmody and Len Scanlan is a disgrace.
Roy Green, Dean of UTS Business School at [University of Technology, Sydney
The release of the Coalition’s final tranche of policy costings and commitments will provide grounds for cautious optimism on the part of those with an interest in the development of Australia’s innovation system and innovative businesses. While there are spending reductions for the Automotive Transformation Plan, Manufacturing Technology Innovation Centre and ICT Centre of Excellence, and a “reprioritising” of Australian Research Council funding, there are also further, albeit more modest, commitments to the expansion of Export Marketing Development grants and a Manufacturing Transition program. There are also increases planned for Rural R&D Corporations, understandably given the National Party’s priorities, and it is to be hoped that these increases are for genuine R&D rather than marketing and consultancies.
Most importantly, it would appear that the major innovation and business improvement programs have been spared major reductions, though of course there may be some reconfiguration of these programs and they may have fewer staff to run them. The programs to survive at this stage, unless we hear to the contrary, include Enterprise Connect, Commercialisation Australia and the newly announced Innovation Partnerships.
For the last, it may be a stay of execution until the Commission of Audit as shadow minister Sophie Mirabella has indicated an intention to scrap the partnerships as they are currently constituted. Needless to say, anything to do with a clean energy future has gone the way of the carbon tax, subject of course to the balance of power in the Senate.
There are inevitably mixed views in the Coalition about the efficacy of innovation programs, but it may be that significant industry commitment and momentum, reflecting the demonstrated success of these programs, will ensure their continuity. This would be good news for the growth and transformation of businesses across Australia, for their workforces and for the economy as a whole, and augurs well for a more bipartisan approach to these critical policy areas. The Coalition will have cause to be grateful to the Labor government for taking some of the hard decisions for them, in particular the cuts to funding for higher education and research infrastructure.
Sinclair Davidson, Professor of Institutional Economics at RMIT University
The long-awaited Coalition costings were released this afternoon – one and a half days before election day. Apparently in previous elections the ALP had released their costings at 5pm on election eve – so somehow that condones the Coalition being tardy.
That really sums up the whole “costings” exercise – everyone gets to play “gotcha” and silly-buggers and avoids the important questions. The really important question is whether it all really matters that much? How much detail do we really need? I suspect not much.
What voters do need to know is whether the entire package of promises are financially plausible – not whether each and every cent of spending is accounted for. We know full well that the government’s plans are going to change depending on the composition of parliament after Saturday (and especially after July next year) and as economic circumstances change. That is true irrespective of whoever wins government.
For example, we know that the Palmer United Party does not have a financially plausible package – it is promising massive tax cuts while also promising massive spending increases.
So the test to my mind is whether the numbers are broadly consistent with the story. More or less, the answer is “yes”.
The model the Coalition used this in election of having an Independent Costings Review Panel is a good idea and ensures that the public can have confidence that some serious scrutiny has occurred. That is probably the best that can be done from opposition and I suspect the ALP will adopt that model when they are next in opposition.
In short, given the limitations of opposition the Coalition have done as best they can, and the best that can be reasonably expected on the process.
Within the process, however, there are still policy choices that can be discerned and criticised.
The Coalition had already announced that the carbon tax and the mining tax would go and some of the associated expenditure would be cut as well. That is sensible, but that does raise the question why all the associated expenditure wasn’t cut.
What is new is that the rate of growth in foreign aid expenditure would be cut. So foreign aid isn’t being cut per se or even frozen. This will cause some consternation; but I suspect most Australians would be somewhat indifferent to this reduction in proposed expenditure.
I’ve also seen some discussion about reducing waste – especially around ARC research grants. Joe Hockey was asked about this repeatedly in his press conference. This will cause howls of outrage from the university community – but it is only $103 million over four years. This is an argument the universities can’t win – there are elements within Treasury and the Department of Finance who would want make deeper cuts into the ARC.
Then there is lazy policy – another efficiency dividend (directed at the public service). I am not a fan of efficiency dividends – what ends up happening is that fewer people do more work. What needs to happen is that specific functions and activities should be targeted and discontinued. The notion of efficiency dividend assumes that good government can be delivered on the cheap.
This latest efficiency dividend relates to a reduction of government advertising. Yes – we’ve heard this one before. The Coalition proposes to cut $220 million in 2016/17 just in time for the next election. No, I don’t believe it either.
Then are the things that a Coalition government will do that should be undertaken by state government, or even local councils. Drowning is a terrible thing – but I’m not sure the Commonwealth should be spending $10 million on it. $20 million for a marriage voucher trial? Really?
The biggest problem with the costings, to my mind, is the $1 million set aside for the National Commission of Audit. This is the promised audit of all government spending that the Coalition have promised will be established to do a thorough analysis of all government spending. They are just not serious if all that is being budgeted is $1 million. The Henry Tax Review had a budget of $10 million.
To my mind the National Commission of Audit is one of the most important initiatives the Coalition has proposed - they will need to spend much more than $1 million to get it done.