Treasurer Joe Hockey announces his rejection of the GrainCorp bid on Friday. Photo: Peter Braig
Think of a number. Say it's 24. Call this the Pre-election Economic and Fiscal Outlook. Now let's have some fun. Double it, subtract one, and multiply by a billion. Congratulations, and welcome to your new day job as Treasury Secretary. You've just guessed the Mid-Year Economic and Fiscal Outlook deficit!
The down side of working in finance is that the Academy Awards (outrageously) still refuse to believe economic forecasting is a category worthy of an Oscar. Can't they recognise the sublime contribution that's being regularly made to the acting profession? On the plus side, however, is the fact that Secretary Martin Parkinson's salary isn't linked - in any way - to the accuracy of these guesses about the future. This is probably just as well. If his salary was linked to the predictions (sorry, careful calculations) he released just before the election, the poor bloke would have just seen his pay cheque slashed by almost 50 per cent this week alone. He'd have to get by on something like $400,000 or so. Mind you, that'd still be more than the President of the United States. It'd be twice as much as the US Treasury Secretary. Where better to begin demanding a bit of ''spending restraint''?
So, the first point to understand about this week's economic ''outlook'' is that you can ignore it completely. It exists simply to provide political cover for the slash and burn budget to come. There's only one catch. Everyone's now twigged to the utterly obvious: the ''predictions'' aren't worth anything.
So what does Treasury itself think about all the hoopla and rubbish commentary that's accompanied this week's announcement? On Wednesday it published a working paper titled ''Estimates of Uncertainty around Budget Forecasts''. This noted, ''a more nuanced discussion would acknowledge uncertainty … with confidence intervals spanning a wide range of outcomes''. Hallelujah! It's another way of suggesting the MYEFO's a political document - nothing more, nothing less.
Everyone knows things are bad: the only question is, exactly how should the budget be returned to black. Normally, a government would either cut spending or raise revenue. That's what Peter Costello did when the Liberals came to office in 1996. Trim. The cuts were grudgingly accepted because of the simplicity of the message. It resonated in the community. But that's not what this government is doing. Joe Hockey must like a challenge, because although he's cutting (public service jobs, industry assistance, green electricity programs, education programs) he is also spending (repealing the mining tax, subsidising wealthy mothers on maternity leave, and education programs). Where is the logic here? The government's sliding in the polls because its message is confused. Voters can see the cuts are not being applied across the board. What is going on is redistribution. Unfortunately, Hockey is no Robin Hood.
The polls are quite rightly indicating the community has abruptly lost confidence in the ability of this government's economic team. The reason's obvious. Their message is completely confused. Having made such an issue of the deficit in the election, Tony Abbott can't suddenly change tack and say it doesn't matter.
A couple of hundred years ago, national expenditure was basically limited to national functions like defence, foreign affairs, and government service (with a big dollop of infrastructure spending thrown in).
The need for investment in public goods gradually became apparent. Spending extended to support transport, industry and agriculture, helping business develop and grow. This led, in turn, to a healthy economy.
Gradually this extended into extra support for individuals - healthcare, education, pensions, etc - without any willingness by government to admit that it would need to increase taxes to pay for these (apparently unlimited) services. This is crippling the budget. Both sides are racking up increased liabilities without bothering to increase revenue to fund expenditure.
Take the NDIS, for example. There was originally talk of funding this (non-discretionary spending) with a simple levy, like Medicare. This idea rapidly evaporated. Politicians hate hypothecated taxes (ones where the revenue raised is supposed to go to a particular cause) for a simple reason. It limits their ability to play with money and shuffle it around. The other reason is that although everyone's theoretically happy to give money to the disabled, we've all got a very specific idea about how much something's worth. So while 8¢ a day might have sounded quite OK to fund the ABC back in the '80s, the news that the corporation's now costing more than a billion dollars suddenly energises politicians. This is nearly one-twentieth of the cost of the entire defence force! It doesn't require much rabble-rousing to twist the debate back to discussions about how much individual presenters are getting, if they're worth it, or even specific interviews you didn't happen to like. The minute this happens, you can forget about genuine engagement with real issues that affect the nation.
People like simple stories. Everyone understands ''debt is bad''. But explaining why Australia's wealthiest woman, Gina Rinehart, should be exempted from the mining tax while the public service is slashed is a confusing message. It's certainly not being sold very well.
Nicholas Stuart is a Canberra writer.