Treasury’s dodgy maths are going to cost taxpayers a motza

Treasurer Josh Frydenberg. Picture: AAP

After the revelation that there had been a $60bn costing error in relation to the JobKeeper program, I was expecting to read about the resignation of the Treasury secretary or the deputy secretary heading the fiscal group. I’m still waiting. There has been no apology, only a lame excuse that inaccurate information was provided by the Australian Taxation Office.

In previous times, when the prestige and competence of the Treasury were seldom questioned, it’s unlikely this mistake would have been made. But if it had, there would have been serious consequences, not a simple shrug.

Working on the basis of “if it sounds wrong it probably is wrong”, a figure of 6.5 million individuals on JobKeeper was always far-fetched. (There are closer to 3.5 million individuals on the program.) After all, large slabs of the labour force have continued to work, including from home. Think: agriculture, mining, manufacturing, construction, the public sector, parts of retailing and wholesale trade, postal and delivery services, and healthcare and social assistance.

Do the numbers on the back of an envelope and the figure always sounded wrong. The question this error raises relates to the internal processes within Treasury that prevent serious checking of estimates, including of the data provided by the ATO.

Surely the fact so many businesses intending to claim JobKeeper had nominated precisely 1500 recipients should have raised warning flags. A few minutes of digging would have indicated that Joe’s Corner Store in Woop Woop was most unlikely to have this many workers.

To be sure, the Treasury has been working at speed to deal with the economic fallout of COVID-19. And, initially at least, it was extremely uncertain how the pandemic would develop. But this shouldn’t have prevented every staff member expressing a view on important issues; groupthink never leads to good outcomes.

The Treasury also made a serious error early on by recommending that the major means of compensation to affected workers should be via JobSeeker. There was little support for a wage replacement scheme such as JobKeeper. There were several problems with Treasury’s initial stance, the most important being the inability of Centrelink to deal with the additional recipients. Scenes of long queues outside Centrelink offices quickly put paid to this strategy.

There was also the issue of the observed impact on unemployment. Now, JobKeeper may be a contrivance, but there is something to keeping the recorded rate of unemployment much lower than it would be otherwise. (The Australian Bureau of Statistics doesn’t count those on JobKeeper as unemployed.) A high rate of unemployment may discourage jobseeking given the seemingly low probability of finding a job.

JobKeeper’s design also has emerged as a problem. Simplicity and the speed of the rollout were considerations, but it would have been easy to have two flat rates of compensation: one for full-time workers and the other for part-timers and long-term casuals. A possible combination was $1500 and $1000 a fortnight.

Not only would the costs have been lower, it would have reduced the number of part-time and casual workers being paid more on JobKeeper than their previous earnings.

Then we come to last week’s announcement of subsidies to the construction industry with the HomeBuilder scheme. There are so many preconditions attached to the program — timing, content, home value limits, household income limits, builders’ requirements — that it’s hard to see many new projects going ahead.

Moreover, those who end up with financial support from taxpayers, assuming it is not eroded by higher project costs, generally will be those with secure, middle-income jobs. It’s hard to square this outcome with the equitable distribution of funds that have to be borrowed and repaid by taxpayers.

Perhaps wounded by the poor advice Treasury has provided in the past — pink batts, school halls — the pendulum has swung to loading up government spending programs with so many restrictions that the underlying objectives are almost forgotten. It would be better to scrap this scheme.

The decline in the quality of the advice that Treasury provides significantly predates the onset of COVID-19. Notwithstanding the exodus of many excellent staff members at the time of financial deregulation in the 1980s and 90s, the quality of Treasury output was maintained for years. The rot set in early this century.

Keynesianism became the dominant paradigm and interest in supply-side reforms waned. The economic modelling capacity of Treasury was gutted and with it the useful analysis of the input-output connections in the economy. Too many suggestions involve higher government spending to solve what are often structural problems that generate perverse incentives.

In recent years, it has been said that Treasury officials no longer offer preferred options to ministers, taking the coward’s way out by serving up a suite of possible policies. Such an approach underpins a lack of confidence on the part of Treasury.

Treasury’s unquestioning support for high population growth based on substantial migrant intakes also has been a consistent feature of advice, despite the fact research results are ambiguous and the costs of high rates of immigration are underestimated.

The Centre for Population has now been set up within Treasury, costing more than $20m. On the face of it, this looks simply like a wasteful propaganda unit dressed up as economic analysis.

Talking about wasting money, the decision to set up separate Treasury offices in Sydney, Melbourne and Perth also underpins the fact leadership of Treasury has lost its way. Based on the fanciful notion that it’s impossible to attract good people to Canberra — how does that make officials in the nation’s capital feel? — this development has achieved nothing apart from adding costs and co-ordination problems. It needs to be reversed as soon as possible.

It is times such as these that the Australian people need sensible and measured policy advice to politicians so the economy can recover to regain as many jobs as possible. The opportunity also should not be lost to achieve structural reforms that can underpin higher living standards down the track. Sadly, it would appear that Treasury is not up to the job.

Its costing error on JobKeeper underscores the decline in the quality of Treasury’s output, its deficient processes and the failure to be accountable for the mistake. But its shortcomings are much broader than this example and we will all bear the consequences of shoddy and inade­quate advice.