Australia finds itself in the remarkable position, at the end of the biggest resources boom in its history, looking at budget red ink for as far as the eye can see. And Smokin' Joe Hockey, once among the most popular members of Team Abbott, finds himself the focus of blame.
This is understandable, but also a bit unfair. The budget is not just his work. It represents the economic world view of the whole government. Indeed, it represents the right-wing ideology of two governments: the Howard government and that of Tony Abbott, who memorably described himself as the political love child of John Howard and Bronwyn Bishop.
The budget, with its raft of grossly regressive savings measures, can be seen as just one part of a long and concerted effort to redistribute income upwards.
IMF assessment
That effort began more than a decade ago when John Howard and Hockey's predecessor, Peter Costello, ran the most profligate government in Australian history.
Profligate is not our word. It was the word used by the International Monetary Fund in a major report it released early last year, that examined 200 years of government financial records across 55 major economies, identifying periods of government prudence and profligacy in spending.
Overall, Australia was judged very favourably. For most of the country's history, governments of both persuasions had been prudent economic managers. The IMF identified only four periods of profligacy. The two biggest were during the HowardCostello years. They were in 2003 and then between 2005 and 2007, and they accompanied the mining boom.
On its face, the IMF assessment might seem harsh. After all, before they were voted out in 2007, Howard and Costello had delivered six budget surpluses in a row.
But they also seriously undermined the structural integrity of the budget by making big spending commitments and giving huge tax cuts, on the basis of a flood of revenue that would inevitably dry up.
"You can sum it up in four words," says Chris Richardson of Deloitte Access Economics. "Temporary boom, permanent promises."
For a period money roared in to the economy, as a result of what was happening in China and elsewhere. According to Richardson, this enormous boom made the government of Howard and Costello look better than it was.
"Subsequently we've heard the sucking sound as the money's gone back down the gurgler, which has made Rudd, Gillard and Swan look worse than they were," he said. "And it's now making Abbott and Hockey look worse than they are."
'They spent the lot'
To be fair to Howard and Costello, they were encouraged by the bureaucrats in Treasury, the Australian Bureau of Agricultural and Resource Economics and even the Reserve Bank to think this boom was different, and that the money would continue to roll in for decades to come.
"That was a failing. We've never had a permanent boom before," says Richardson. "Anyway, they spent the lot. On tax cuts, baby bonuses, and so on."
John Hewson, former Liberal leader, economist and now professor with the Crawford School of Public Policy at the Australian National University, underlines the point: "The tax cuts Howard and Costello gave are now costing [the budget] about $30 billion a year, and the deficit's $40 billion."
Without those cuts and the $9 billion Hockey gave unasked for and against the will of treasury to the Reserve Bank, says Hewson, "the deficit problem wouldn't exist".
And that's without including some $40 billion in tax concessions for superannuation, which accrue overwhelmingly to the wealthiest 20 per cent of taxpayers.
"You can easily add it up to show that the deficit that exists today is a fake number," says Hewson. "They've basically imposed it on themselves."
More correctly, they imposed it on the less well-off.
Matt Grudnoff, the senior economist at The Australia Institute, calculates that over the seven years from 2005-06 to 2011-12, the federal government lost $169 billion in revenue as a result of the income tax cuts alone.
"Of the $169 billion in tax cuts, 42 per cent of them, or $71 billion, went to the top 10 per cent of income earners," he wrote in his paper "Tax cuts that broke the budget". "The top 10 per cent got more in tax cuts than the bottom 80 per cent."
On Grudnoff's figuring, this year's budget would have been fatter by almost $40 billion had the cuts not been given.
Rudd followed suit
The HowardCostello government delivered five rounds of income tax cuts, and had promised more during the 2007 election campaign. The incoming Rudd Labor government, having committed to match the Coalition's promised cuts, delivered them.
So Labor cannot escape all blame for the current state of the budget. But it is largely guilty of just proceeding to do what the Howard government would have done, by hacking into revenue. Its spending, contrary to the consistent assertions of conservatives over recent years, was not the issue.
That has been made abundantly clear by various analyses of the structural decline of the budget.
Having detailed two of these reports last year by the treasury department and the independent Parliamentary Budget Office The Sydney Morning Herald's economics editor Ross Gittins apportioned the relative culpability of the two parties thus:
"They say it's only when the tide goes out you discover who's been swimming naked. It's the same when you calculate the 'structural' budget balance. And we've just learnt that though Wayne Swan's cossie has slipped revealingly, Peter Costello was completely starkers."
Not surprisingly, Swan endorses these analyses: "It's the revenue, stupid," he says. "It was a revenue story throughout."
Chris Richardson agrees.
"To understand Canberra over the past decade, you have to follow the money," he says, and takes us on a quick tour, complete with roller-coaster graphs.
The boom that made the Coalition government look good lasted less than a year into Labor's term in office, he says.
"Then it all came crashing down with the GFC [at the end of 2008]. Then it roared back up in 2010-11, which is when Swan said we would be back in surplus in three years. He thought the commodity boom was returning, but in reality coal and iron ore prices had peaked in 2011."
Last surplus forecast
On October 22, 2012, MYEFO came out, for the last time forecasting a surplus in 2012-13.
"That happened to be the first day for payment of the new mining tax and the day for the quarterly payments of a couple of other taxes," Richardson recalls.
But receipts were nowhere near the forecasts issued that very day.
"By the end of the day, MYEFO was all over, red rover. The surplus was gone. It was a bizarre day. From there it was a steep line of revenue write-downs," says Richardson.
Swan recalls that time only too well, and particularly the press conference he was forced to give five days before Christmas 2012, "when I had to go out and admit we weren't coming back to surplus".
"The last lot of revenue downgrades was so large it would have been damaging to the economy to try to force it back to surplus in 2012-13," he says.
That was the worst, but he says: "All of our MYEFOs from 2010 onwards were like bloody budgets, because every forecast came in under."
Joe Hockey is fast learning how that feels.
The important thing about all this history is how it illuminates the present.
It is largely because of decisions taken a decade and more ago that young unemployed people, pensioners, students, the sick and the recipients of foreign aid are now being targeted by budget cuts.
The Howard government was blessed with a huge windfall. Fiscal prudence, based on the understanding that all previous mining booms have ended in busts, would dictate that revenue be preserved somehow.
It might have done this in a number of ways, such as spending on big infrastructure projects. Instead infrastructure spending slipped to its lowest level in decades as a proportion of GDP.
Or it might have put the extra tax revenue into a sovereign wealth fund, like so many resource-dependent economies around the world have done.
It might have kicked one-off payments into the superannuation accounts of Australian workers.
But that is not what the Howard government did.
"Not only did they give away $40 billion, but they skewed the giveaways heavily in favour of the wealthy," says Hewson.
"Now, take that expenditure history and then look at this budget, with its 10-12 per cent cut to the disposable incomes at the bottom end of the income scale people on $50,000 or $60,000, and less than 1 per cent cut to disposable income at the top end.
"What we have is the legacy of past inequity plus the inequity of the present measures. And they wonder why their budget gets slammed."
The interesting thing in political terms is that there was no such outrage back when Howard and Costello were handing out tax cuts on an annual basis.
So long as everyone was getting a little extra, it seemed, most people were prepared to overlook the fact that 80 per cent of the extra lolly was being given to 20 per cent of the populace.
http://www.thesaturdaypaper.com.au/...otege-tony-abbott/14189940001389#.VPswE47Snh7
