Posted by In the ongoing series of Lenore Taylor’s articles defending the Rudd-Gillard government she remarks that:
If we’d done exactly what the Coalition said we should do, we’d still have come out of the crisis around $180 billion in debt, rather than $200 billion.
$20 billion! Nothing to worry about then. That’s only $1000 per Australian or, ironically, the net worth of Gina Rinehart.
And these figures do not include the $50 billion NBN or the $10 billion Bob Brown bank.
ricardian ambivalence 
Just finished reading the article. I think she was just pointing out Abbotts hypocrisy. This is a good thing as its more than likely he willl be the next PM. Its not so much the differences of the past its the fact that Abbott and Co think they can ride through on the promise of a Magic Pudding.
I would feel much more comfortable if they were honest and didnt promise all the ridiculous things they are promising. Its really not necessary as Labour have imploded and really, I dont think they have anyway back…they will be in damage control from now until the election just trying to limit the damage and hoping Abbott stuffs up. And by the looks of it he is playing straight into their hands…but he has time to talk it down thus averting any long term damage.
In my experience, governments get a lot of help from the public service in policy development. Oppositions always stuff spending plans up, as it is very hard to get them right.
A ‘normal’ spending iterates a few times between the ministers and public service – and in doing so grows up from ‘unaffordable mess’ to something that is generally affordable and not too awful. Along the way, the government also has the luxury of tweaking their 250 annual budget to find some extra cash.
You need the help of loads of public servants to do this – which is why governments always find fiscal holes in opposition spending plans.
I tend to think of all this noise as laying out ideas and priorities. Whoever is in government, they will find the money for their priorities. Just the same as every government finds the money.
The question is, what will they cut? You can bet they will find a black hole, blame it on labour, and produce a tight budget.
Yes in terms of net debt it is inconsequential. Expressed as a % of GDP, as it should be, there will be little difference.
I think Lenore has been very conservative in attempting to add up what the debt may have been under the coalition.
The structural deficit had been increasing each financial year so we could assume it would be at least 1.5% of GDP going into the GFC. We then do not know what they may have done after that.
It is unlikely to have been as quick as the ALP nor as large in spending . Given the Structural defcit would beat least 1.5%% of GDP by the time they acted and assuming a smaller stimulus unemployment would have risen. Probably doubled at least.
We do know what has happened to revenues so then it is merely a matter of second guessing expenditure.
My guess is the difference would be less than $20b. Over time it maybe have been more depending on how strong/weak the economy would be. We know it would not be as strong as under the present government.
We do not know how they would have bargained re Basel111. Gross debt may have been much larger as a result.
The NBN is a capital item and thus not in recurrent expenditure. Just like Telstra and the PMG before it.
I think economic policy under the present government has been excellent. Just because they couldn’t sell a beer on a hot day doesn’t mean they haven’t done a good job.
I agree that this was a largely fair article from Lenore. It’s just that, like most of Fairfax, there is hardly ever an article that simply focuses on the govt. There always must be a crack at the Opposition.
I find this strange. Ricardo is spot on, the govt already has the resources to attack the Opp, the press should focus more on the executive. I am not sure if it is the political leanings of journos (which are on the whole undoubtedly left) or just laziness. It is a lot easier just to rehash the talking points from the govt than do some original research.
I don’t agree with Lenore on the $20 bn. She puts the stimulus at ~$50 bn when in fact it was just under $90 bn. There is also a lot of non-stimulus expenditure that the Coalition would not have done. Off the top of my head GP super clinics, laptops in schools, car assistance, water buybacks (not as much so soon), indigenous housing, foreign aid, green loans, asylum seeker costs and just general growth in the public service. Most of these programs have been absolute disasters — though you hear less about them because the bigger stuff ups take the oxygen.
The NBN is classified as capital spending but there is no way its asset value will ever equal or exceed cost. Moreover, it does affect the $200 billion figure that Lenore is quoting because that is gross debt. There is also around $1.5 billion in interest expenses which do hit the budget relating to NBN borrowing.
While I agree that govts have the resources to pick holes in the opp policy costings, Abbott already knows this. So why has he made himself such a large target. Plus I think everyone realises that this govt is on the nose and probable wont be around after the next election…whenever that is. So in my view Abbott is fair game, he should realise that, so why so many silly policy positions…he really doesn’t need to promise the world.
Whether journos have a left or right leaning all politicians should be accountable for what they promise…Abbott is just reaping what he has sown.
Drpage, People with a left lean raised analogous points when they were in opposition. Bottom line politicians stretch the truth and overpromise this is just another case of them being called out on it.
Agreed on the notion the of the “surprise black hole”. Seems to be the modus operandi of incoming governments…remember swan doing a similar thing. But I think Abbott is underestimating the backlash he will get. As for what he will cut back…the same thing every incoming goverment does…public servants. Then they rehire them all back because they realise they need them. Its all very predictable!
There is no black hole these days given the PEFO.
Swan’s big argument should have been the increasing structural deficit not any black hole but as usual he stuffed up on this.
My figuring on the last election was the Opposition didn’t expect to win and so didn’t do any work hence the reason why their costings were sooo bad and so far out.
I am hoping it will not be the cast next time round but any speeches they give do not give me any hope.
I agree governments have the full resources to attack the Opposition and this was what the previous Government did all the time.
If the NBN ever had to be sold it would get well over its cost. It is a monopoly. but it will not.
A lot of what you state is merely expenditure which was not new. It was merely changed from one area to another so had no net value
You are wrong on the NBN. The KPMG-McKinsey study, and NBN Co agree, that the risk adjusted cost of capital for the NBN is over 8 per cent. But the corporate plan has the ROE of the NBN only at around 6%.
That’s negative equity from day one. Sure you could flip that by letting NBN Co charge monopoly prices but doesn’t that defeat the whole point. Weren’t we doing this because Telstra had too much market power!
Agree that previous govt did the same, indeed on the matter of costings, Costello invented the playbook. That’s why we need a strong media.
The Coalition’s costing weren’t “sooo bad”. Anyone that has had any experiencing with costing or financial forecasts knows that most of the disagreements between Tsy and Coalition were silly. In any case, even according to Tsy’s projections the Coalition delivered a stronger bottom line than the govt.
Andrew Robb is no fool, and neither are those on the other side. I don’t question Wayne Swan’s ability to add up, I just don’t think he has been good at day-to-day cost mgt, which is a much harder task. (By the way, neither did Lindsay Tanner, who left the govt in disgust.)
I was talking about the NBN’s price if it had to be sold!!
No it is very badly incorrect to say disagreements between the treasury and the coalition were silly. They were badly off in understanding what bonds to use for interest payments and what a contingency reserve is just for starters.
The coalition could have easily used consultants such as Access or the Melbourne institute etc so they would have avoided such silly errors.
They didn’t and then attempted to sell their document as being audited when it hadn’t been.
The ALP did the hard work given the charter of budget honesty when they were in Opposition but the Coalition were too lazy too.Simple as that.
The way they are talking it seems they haven’t learnt their lesson.
I don’t want to be rude but I think every point you make here is wrong.
1. NBN’s price will be determined by its rate of return. If its rate of return is below its cost of capital (which NBN admits it is) then it’s price, if it had to be sold, will be less than cost hence negative equity. That’s just a financial fact.
2. Take your two examples. The disagreements on bonds were how to estimate what the future interest rate on CGS is. Tsy don’t publish how they estimate this. The Coalition took a 60 day average, turns out Tsy just use a point estimate of whatever day they do the estimate on! I’d say the Coalition’s method is much more accurate. Tsy admitted that if the Coalition were in government they could reduce the contingency reserve as they saw fit. Indeed, reducing the contingency reserve was one of the govt’s “savings” in MYEFO last year!
3. No, the Coalition could not have taken their work to these organisations. Access and Melbourne now judge that doing this work is too politically risky . Given the over-reaction to the Coalition’s costings most 2nd tier accounting firms will probably judge the same now too.
4. The ALP did not do the hard work when they were in opposition. Rudd and Swan issued their costings the day before the 2007 election!
More generally, most agree that the whole costings exercise is broken in Australia and Costello can be blamed for this. Hopefully the Parl Budget Office will help a little but I don’t hold out too much hope.
you still seem to be confused. I am talking about SELLING the NBN.
you get a lot of money selling a monopoly.
British Telecom and Telstra are but two examples of this.
no there was more to those two costings than that.
The reason why neither do the work is one Peter Costello. All the Opposition would have to do is apologize for Costello’s behaviour with regard to Access and ask them to do the work as they have done in the past. Afterall they do have liberal leanings.
You are forgetting 1998, 2001, 2004 elections.
The only substantial costing in 2007 was tax which Costello had already done but inexplicitly didn’t understand!
No the whole costing exercise isn’t broken and has never been.
Costello , through the Charter of Budget honesty made it very hard for Oppositions.
i agree on the proposed PBO but allowing the Opposition more latitude. A sort of CBO down here.
the ALP played along with this charade until 2007.
The Liberals then complained about their policy in the last election.
I would trade all the FOI laws for an independent budget commission, with powers to demand docs from Treasury and the dept of Finance.
FOI seems to be the enemy of open govt.
Well one of us is confused. I know that you are talking about selling the NBN.
Here’s a simple example. Let’s say it costs you $100 to buy a drill. That drill is expected to make a return of $6, or 6%, but the the risk-adjusted cost of capital is higher than that. Ergo, the market value of that asset is less than $100. That is you will SELL that drill for less than it cost you to buy.
That is the NBN in a nutshell. Why do you think the govt can’t sell debt linked to the NBN, let alone equity?