Federal Politics


When perceptions don't add up

POLLS repeatedly show the public believes the Coalition is best able to manage the Australian economy.

No matter what economists say about the achievements of the Hawke-Keating government or the value of the Rudd stimulus package, the public perception is that the Liberal-Nationals would manage better. They would maintain a tighter hold on the purse strings.

But a new independent study challenges this perception and provides evidence that the Howard-Costello government was the most wasteful in recent decades.

The study carries creditability because it was not prepared by partisan Australians, or by critics with a left-wing perspective and an axe to grind. It was conducted by four independent researchers working for the International Monetary Fund, using standardised criteria to assess the profligacy or prudence of 55 countries. They drew from the most comprehensive database available, covering fiscal revenues, primary expenditures, the interest bill (and thus both the primary and the overall fiscal deficit), the government debt, and gross domestic product to gauge the degree of fiscal prudence or profligacy for each country over the past several decades.

They then ran this data from each country through the mathematical hoops to produce graphs showing eras of waste and thrift. Greece, as you would expect, shows up poorly over the past few years; Argentina gets a bad wrap in the years immediately after the turn of the century.

Australia's performance was assessed as prudent for virtually the whole of the 20th century, except for two single wasteful years - one each in the 1940s and 1960s.


But the most wasteful periods occurred in the new century, in 2003 and 2005-07 when the Howard-Costello partnership was in full swing.

As you would expect, opposition spokesmen were quick to dismiss the work, asking why the Whitlam government's performance did not show up. They take it as an article of faith that Whitlam, Cairns and Co. were the most profligate.

But it's not so. One of the great myths of Australian politics is that Whitlam emptied government coffers. Treasury records confirm the study's findings that Labor lived well within its means in those years.

In fact, the Whitlam government recorded surpluses in 1972-73, 1973-74 and 1974-75. The following financial year - during which Whitlam lost government in November 1975 to Malcolm Fraser - payments exceeded receipts and a deficit of $1,499 million was recorded. The Fraser government then went on to post considerable deficits for the next five consecutive years, before managing a small surplus and then another deficit. It should be noted here that John Howard was treasurer from December 1977, with four of his five budgets producing deficits!

If surpluses are to be seen as the measure of a good treasurer, or government, one could only conclude that Howard was a disaster and Whitlam and his treasurers a success. But it's not that simple.

The Gillard government and Treasurer Wayne Swan have thankfully given up the pursuit of a surplus for this financial year, finally recognising that to do so could plunge the country into recession. Unemployment is creeping up. Corporate tax rates and revenue from the minerals resource rent tax are likely to be well down on budget forecasts.

To cut expenditure to match this fall would serve no good economic purpose and, in an election year, such cuts would be suicidal.

Labor strategists know they already have an uphill battle convincing the public that their party will competently manage the economy. The government has been given little credit from the electorate for its successful management through the global economic crisis.

The IMF working paper - which does not necessarily represent the official view of the organisation - provides Labor with reputable, independent ammunition to fire during its election campaign.

In addition, there is other research that challenges the Coalition's favourable reputation.

In 2007 - the year the Coalition lost office - two Treasury officials, Kirsty Laurie and Jason McDonald, published a paper analysing the trends in Australian government spending. One of their observations stands out - over the previous 10 years there was a dramatic reduction in the number of savings measures included in budget reports. In the 1997-98 budget, close to a third of all measures had a savings component, whereas by 2006-7 the savings measures had fallen to a paltry 1.5 per cent of total measures. The value of the savings measures also showed a dramatic drop.

Of course Howard and Costello and their defenders will point to the Future Fund they set up as evidence of their frugality. In fact, it is nothing of the sort. The bulk of the fund's assets came from the sale of Telstra. But Telstra was founded and built up by previous administrations. The Howard-Costello government merely sold it, thus changing the form of a public asset. This is not a savings measure.

The May budget will be brought down with an election in mind. Shadow ministers are already suggesting that Labor will try to buy votes with a big spending splurge. But it is far from clear that this is the best Labor strategy.

To win, the government needs to be seen to be acting responsibly. The worst thing it could do would be to deliver a series of measures that Opposition Leader Tony Abbott could easily characterise as irresponsible.

Interestingly, polls conducted after the last five budgets showed voters rejecting the proposition that the opposition would have delivered a better package than the government actually brought down. Labor needs this sort of endorsement more than ever this year.

Abbott himself will be under some scrutiny. To maintain his credibility, in his reply to the budget he will have to specify the cuts he plans to make to achieve his promised smaller government. But he can't go too far. He does not want to suggest to Queensland voters, for example, that his government will bring more Campbell Newman-style job cuts.