Tony Abbott's budget emergency: what are the facts?

13 May 2014

Published in The Guardian, Comment is Free

Its difficult to find words to adequately describe the spectacle of the Abbott government setting about hiking income taxes and fuel excise in its first budget. Beyond belief, as one of the prime ministers colleagues quipped, comes close.
From the man who promised no new taxes, and argued that no country has ever taxed its way to prosperity, here come the new taxes.
This reveals more than a prime ministerial hypocrisy. It also makes clear the lie that is the budget emergency. If the budget were replete with wasteful Labor spending that could be cut, as Tony Abbott kept telling Australians before the election, there would be no need for tax hikes.
The Coalition appeared to believe their political lines actually constituted fiscal policy. But they didnt, and they wont. Abbotts addiction to scare campaigns is well known. From claiming whole cities would be wiped off the map to the budget emergency, facts are sacrificed in pursuit of a political objective. But not one of the prime ministers claims about the budget stacks up against a simple fact check.

Claim: Australia has a budget emergency

Nations with budget emergencies dont receive AAA ratings with a stable outlook from all three credit rating agencies, as Australia did under Labor.
Australia is one of only 10 economies in the world with AAA ratings from all three agencies in the company of other countries with strong public finances like Germany, Canada, Sweden, Singapore and Switzerland. This status shows our finances are considered to be stronger than those of the vast majority of advanced economies including the US, the UK, Japan, France and New Zealand.

Claim: Debt levels are unsustainable

The Australian government has low levels of debt by world standards.
The latest budget update shows net government debt for 2013-14 of $191.5bn, or 12.1% of Australias GDP. By contrast, net government debt in advanced economies around the world averages 74.7%, according to the International Monetary Fund.

Claim: Labors deficits were too high

Governments typically run budget surpluses when the economy is strong and deficits when the economy is weak.
Labor allowed the budget to go into deficit in 2008-09 because the global financial crisis was threatening to plunge our economy into recession. Our action stimulated the economy, kept Australia out of recession and supported hundreds of thousands of jobs.
The deficit peaked at $54.5bn, or 4.2% of GDP, in 2009-10 less than half the advanced country average. Then, as the private sector started recovering, Labor started reducing the deficit. In our last full year in office, 2012-13, the federal deficit was $18.8bn or 1.2% of GDP, compared to an advanced economy average of 4.9%.

Claim: Spending was out of control

In the four years from 2009-10 to 2012-13 Labor met its fiscal rule of keeping real average spending growth to less than 2% a year. In fact, this was the lowest four-year period of real spending growth in 23 years.
The Abbott government arrives at a higher figure for political purposes by including the 2008-09 stimulus an economic program the Nobel laureate, economist Joseph Stiglitz, has described as one of the best designed stimulus packages of any advanced economy.

Claim: Labor increased taxes

Labor was a low-taxing government. During our time in office, federal government receipts averaged 22.5% of GDP. By contrast, under the Howard government, receipts averaged 25% of GDP.

Claim: Debt will reach $667bn by the end of the decade

The budgets debt and deficit figures have been inflated by Joe Hockey through a combination of spending decisions and changes to economic assumptions, such as unemployment projections. These changes doubled projected budget deficits by $68bn and have also blown out debt figures. These political changes in Budget assumptions were confirmed by Treasury at Senate estimates hearings earlier this year.
By contrast, the independent pre-election economic and fiscal outlooks medium term projections, using long-standing methodology, show that on Labors policy settings the budget surplus grows to 1% of GDP in 2020-21 and net debt returns to zero in 2023-24.

Claim: Labors school and disability reforms are not funded

In the 2013-14, budget labor took the unprecedented step of releasing 10 year figures for the National Disability Insurance Scheme and Gonski school reforms, demonstrating how they were funded over the long term.
The Coalition has reversed a number of these savings measures and now claims these reforms represent a fiscal time bomb this is an obvious attempt to justify breaking Abbotts election promises on schools and disability.

The result: Labor v the Coalition

It is the case that structural improvements in the budget are needed to ensure key spending is sustainable. Thats why Labor made targeted savings worth more than $180bn over the six Budgets since 2008-09.
Savings like means testing the private health insurance rebate, removing the baby bonus and reforming the pharmaceutical benefits scheme, rather than hiking income tax and cutting benefits to low and middle income families. Treasury analysis shows that the long-term savings made by Labor mean the budget is cumulatively more than $300bn better off by 2020-21.
Political deceit may have provided Abbott with an expedient path to office, but it represents a shaky foundation for responsible economic and Budget management.