Mr Peter Costello's wasted opportunities.

• Author: Stone, John
• Position: 151441496
• Pages: 22(13)

In an article in this journal a year ago I said: (1)

"The past three months have seen two major political developments--the Prime Minister's so-called 'Athens declaration' and associated political brouhaha, and the federal Budget for 2005-06. Common to both are the personality and performance of the Treasurer, Mr Peter Costello." A year later, the past three months have seen two major political developments--the federal Budget for 2006-07, and the political brouhaha associated with what might be called the "McLachlan declaration". Common to both, once again, are the personality and performance of the Treasurer, Mr Peter Costello.

In what follows, let us first assess Mr Costello's eleventh Budget. In passing, the quality of his budgetary estimating performance will be examined. I shall also note that, whatever may have been the arguments in 1996 for surplus budgeting to deal with the debt legacy of the series of Beazley budgeting "black holes", those arguments no longer apply for a government that now has no net debt. We shall then examine the arguments that the Treasurer has successively advanced in seeking to justify his refusal to provide genuine tax reform. Finally, I shall note some repeated lessons from the "McLachlan declaration" incident regarding the Treasurer's behaviour, and the light they shed on the question, posed here a year ago, of the "Costello for PM" saga.

THE 2006-07 BUDGET OPPORTUNITY

I said last year that "the Budget for 2005-06 is an extraordinary document". Difficult though it is to believe, the Budget for 2006-07, brought down on 9 May last, is even more extraordinary. If last year's Budget was a huge wasted opportunity (as it was), its recent successor was an even greater wasted opportunity. To demonstrate that fact, consider a few salient figures:

* The 2004-05 Budget (May 2004), having provided for personal income tax cuts totalling $14.7 billion over the then four-year forward estimates period (2004-05 to 2007-08), none the less projected underlying cash surpluses totalling $11.9 billion over that period.

* A year later, despite a pre-2004 federal election spending spree ($4.8 billion over the forward estimates period) and further spending promises in the Coalition's election policy program ($9.2 billion over the same period), the 2005-06 Budget, while providing personal income tax cuts totalling $21.7 billion over the then four-year forward estimates period (2005-06 to 2008-09), none the less now projected underlying cash surpluses over that period totalling $34.6 billion.

* A year later again, the 2006-07 Budget, while providing personal income tax cuts totalling $36.7 billion over the four-year forward estimates period (now 2006-07 to 2009-10), none the less projects underlying cash surpluses over that period totalling $44.7 billion. (In fact, because that figure incorporates a piece of budgetary sleight-of-hand by the Treasurer which has taken the earnings of the Future Fund "off-Budget", the surpluses over that period, on a comparable basis, really total $52.9 billion). (2)

Now readers might wonder whether I am being ungenerous. After all, as Mr Costello himself has never ceased to remind us, his last three Budgets have provided personal income tax cuts of $14.7 billion, $21.7 billion and $36.7 billion over the respective four-year forward estimates periods in each case. What, he might say, am I whingeing about?

On the face of it--and leaving aside for the moment that the Treasurer's tax cuts, while welcome enough in themselves, have barely addressed the growing demand for tax reform--that might seem fair enough. But what if we turn the record around the other way? What if, instead of talking about the budgetary revenues devoted to tax cuts over the last three Budgets, we focus instead upon the surpluses still left in the Treasury's coffers, rather than handed back to the people whose money they were in the first place?

On that basis, as noted earlier, Mr Costello's last three Budgets have provided for surpluses (over the respective four-year forward estimates periods) totalling $11.9 billion, $34.6 billion and $44.7 billion (in reality, $52.9 billion). In other words, the money unreturned to taxpayers by the Treasurer in his last three Budgets amounted to 81 per cent, 160 per cent and 144 per cent respectively of the amounts he grudgingly gave back.

In short, in those Budgets Mr Costello could have afforded, even on his own figuring at the time, to have reduced personal income tax (over the respective four-year forward estimates periods) by 181 per cent, 260 per cent, and 244 per cent of the amounts by which he actually did reduce it, while still leaving his Budgets balanced in each case.

MR COSTELLO'S BUDGETARY ESTIMATING RECORD

Before returning to that hypothetical Costello question about my whingeing, note another feature of recent budgetary figuring--namely, the extent to which, year after year, the figures in the Budget documents have subsequently proven to have grossly under-estimated the tax-cutting capacity available.

Who is to blame for this is unclear. It could be the Treasurer personally, by perhaps insisting that the revenue estimates should be ultra-cautiously framed. It could be the Treasury, by perhaps departmentally adopting ultra-conservative assumptions in drawing up the figures presented to its Minister. It could be the Australian Tax Office, whose revenue collection data, which form the basis of the revenue estimates and projections for the years ahead, may have been inadequate. It could be some combination of these. One thing however is clear: the underestimation of the tax-cutting "scope" available in these last three Budgets has been massive.

Take the 2004-05 Budget. It originally estimated underlying cash surpluses in the four-year forward estimates period (2004-05 to 2007-08) totalling $11.9 billion. Twelve months later, in the 2005-06 Budget (and notwithstanding the Government's huge spending spree leading up to the October 2004 federal election, the even greater splurge of spending promises in its election policy programme, and the tax cuts given in the Budget), the underlying cash surpluses in those same four years were now put at $34.6 billion. (3) Very roughly, the original figuring was therefore about $35 billion short of reality.

This gross under-estimation of the budgetary outlook was then repeated in the 2005-06 Budget. In May 2005, that Budget estimated underlying cash surpluses in the four-year forward estimates period (2005-06 to 2008-09) at $34.6 billion. Twelve months later, and despite the further tax cuts now included in the figuring, the underlying cash surpluses for those same four years (including the "off-Budget" earnings of the Future Fund--see the third dot-point paragraph above) were now put at $53.5 billion. (4) Again therefore, very roughly, the original figuring was about $44 billion short of reality.

The 2006-07 Budget, after providing for tax cuts, projected underlying cash...