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Budget Charter Puts the Emphasis on Costs not BenefitsThe Essential SMSF Guide 2012-13Sales Growth not Strong Enough to Support Rising US Markets
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Budget Charter Puts the Emphasis on Costs not Benefits

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John Robertson

The Charter of Budget Honesty was always a political document. Not surprisingly, the current generation of politicians has been dancing around the spirit of its requirements to disclose the costs of their policies knowing all that matters is what electors decide.

When Peter Costello decided to have a charter of budget honesty in 1996 he was taking a shot at the Labor party. The charter was a political attack by the victors in the 1996 election against the vanquished.

Many of the features of the charter seemed well meaning and worthwhile. It required balanced budgets over the course of a cycle, periodic fiscal statements, an intergenerational report to look at the longer term fiscal picture, a pre election economic and fiscal outlook report and the costing of election commitments.

The costing of election commitments has become a preoccupation during the current election campaign. Despite doubts over whether the electorate generally cares about how, when or why policies are costed, the failure of the Liberal Party to publish detailed costings has been a constant refrain from its political opponents.

The ALP has invested considerable credibility in the idea of a $70 billion black hole in Liberal Party commitments, a claim newly formed political fact checking organisations have generally rubbished. Nonetheless, government ministers have seized on the absence of a detailed alternative budget from the Opposition to fashion their own interpretation of what is likely to happen to spending under an Abbott led government.

Some commentators have opined that one of the reasons electors have tuned off the government's attack on the tardiness of the Liberals has been frequent revisions to the current government's own budgetary estimates. Electors are smart enough to have realised that precision in budget numbering is now so spurious that no-one can be expected to get it right.

Planning to balance the budget over the course of a cycle requires an accurate forecast of the cycle in the first instance. For the charter to work effectively, the Treasury department would have to designate where Australia sits in the cycle and, therefore, the date by which the budget needs to move from deficit to surplus to fulfil the requirement. This is a forecasting task the department is not required to undertake and one it would not relish, in any event.

As things stand, the major parties are allowed to define their own cycle timing, effectively pulling the rug from under one of the more fundamental ideas behind the charter.

The Liberal Party has argued it should only be required to detail the overall budgetary impact of its policies after they have all been announced. Tactically, it makes sense for campaigning parties to announce policies progressively so as to be able to maximise their impact on daily news schedules. Having this tactical advantage offsets criticism that a full fiscal impact statement is not being offered until the tail end of the campaign.

If political parties announced overall spending and tax levels early in a campaign, they would almost certainly be pestered throughout its duration to fill in the gaps. Campaigns would be disrupted by speculation about likely unannounced policies.

Consequently, parties do what they think is in their political best interests. If electors object, the electoral strategists reason, they will have the power to wreak revenge within just a few days.

The charter of budget honesty provisions have raised awareness of the importance of assessing the fiscal impact of policy measures. This should have brought with it a heightened sensitivity to ill disciplined government spending although Tony Abbott would say this has not been evident in the past six years. Nor, Labor politicians would say, was there much evidence in the previous three years under John Howard and Peter Costello of fiscal restraint when re-election was at risk.

The fixation about when costings are going to be released has diverted attention away from individual spending commitments and what benefits they will bring.

Even the appraisal of Opposition leader Abbott's paid parental leave scheme has revolved overwhelmingly around the release of the costings from the parliamentary budget office rather than a debate about the reasons why such a policy might be worthwhile.

The Abbott parental leave scheme is supposed to encourage a higher participation rate among women workers. National productivity is supposed to benefit. It should cause a crack in the glass ceiling.

Abbott's contention, that there needs to be a radical change in incentives if there is to be a radical change in outcomes, is not being debated. Perceived political weaknesses are seized upon. High paid workers might get more than lower paid workers, for example. If low paid workers are unable to get a similarly sized benefit, inequities arise and, its opponents assert, a policy is not worth pursuing.

Whether it is a parental leave scheme, a very fast train, speeding up economic development in northern Australia or relocating Australia's defence apparatus, benefits are little discussed. In part, this is the fault of the charter of budget honesty. The charter, by focussing overwhelmingly on costs, is in danger of biasing outcomes.

If a party can show offsetting savings for an expenditure commitment, it is more acceptable irrespective of the extent of the benefits that are likely to flow. Parties must describe the costs of a policy but there is nothing in the charter of budget honesty that requires a demonstration of benefits. This may be enough for the charter to be junked as a costly distraction from matters of greater substance and a largely ineffectual influence on improved budgetary outcomes.


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