It was predictable enough. The new government has announced the cupboard is bare. That will be greeted with some cynicism. But the cynicism has to be tempered with fact. Labor’s projected deficits for 1995-96 and 1996-97 were way off the mark. The 1996-97 position is an underlying deficit of $7.64 billion, compared to Labor’s forecast of a surplus of $3.4 billion.
It meant the election campaign was fought on a bad premise. One side (Labor) knew it and the other side (the Coalition) suspected it, but it suited the Coalition not to acknowledge its suspicion lest it be accused of creating sand-castles of promises which would be swept away when the fiscal tide came in. Worse, when pressed the Coalition said it would put promises before the deficit.
This has put the Coalition in a bind. It promised no new taxes and some new spending. That means it must either not take the deficit seriously or attack areas of government spending that were not quarantined by election tomfoolery. Treasurer Peter Costello made it clear that the Government would do the later, cutting recurrent spending by $4 billion in each of the next two years. That is the responsible course. He said this was needed to reduce pressure on interest rates, because a rise in rates would hit employment.
This is one of the significant differences between Labor’s policy and the Coalition’s. Labor wanted to take money out of the economy, channel it through the bureaucracy and pour it back into the economy through labour-market programs. Labor thought this would target help and lift education and training. Maybe. But it also meant there were fewer jobs for those targeted and trained because the money extracted from the economy and the wasteful and inefficient way of targeting and training meant there were fewer resources within business to employ people. The Coalition, on the other hand, wants to extract less from the economy and hope that that will be enough to increase the demand for labour and training. We shall see.
Events this week have shown how profoundly the Australian economy is influenced by what happens overseas. The Coalition may improve things, but no government can, nor should, hope to have complete solutions. It is a blessing if they just do not make things worse in their short-term pursuit of votes.
Labor is bound to say that the Coalition left it with a similar unannounced deficit. The cupboard was bear in 1983, as it is now. If only the cupboard were merely bear. In fact, as events in 1983 and 1996 show, the cupboard itself is rotten at the base. Governments massage the figures, cook the books … in short, lie to the people. It is time the practice came to an end. The audit commission announced yesterday is to advise on a Charter of Budget Honesty. The charter needs teeth. It should have a small independent staff; be answerable to Parliament not the Executive; and report honestly and regularly (say, quarterly) on the state of government finance in the same way that the Bureau of Statistics reports independently on the nation’s finances.
This (like other reforms making governments accountable) can only be achieved early in the new government’s term, before it has things to hide.