Hardly a chainsaw: Liberals’ guardrails no guarantee of fiscal prudence

The Coalition’s self-imposed expenditure limits would allow for higher spending than what is being forecast by Labor, prompting economists to accuse Angus Taylor of failing to outline a credible pathway towards a lower spending and lower taxing future.

Opposition Treasury spokesman Angus Taylor. Picture: NewsWire / Martin Ollman

The Coalition’s self-imposed expenditure limits would allow for higher spending than what is being forecast by Labor, prompting economists to accuse Angus Taylor of failing to outline a credible pathway towards a lower spending and lower taxing future if there is a change in government.

As Anthony Albanese ramps up his claim that a Dutton government would take both a “sledgehammer” and “chainsaw” to key services, analysis by The Australian shows the Coalition’s proposed “fiscal guardrails” would permit up to $16.8bn more spending in the next parliament, ­compared to what was forecast by the Albanese government in ­December.

Under the rules to cap real spending at below economic growth, a Dutton government would need to find savings of at least $4bn in its first budget in 2025-26 compared to Labor’s planned expenditure in the same year, assuming GDP rises in line with Treasury’s expectations.

From there, the rule would do nothing to prevent the Coalition from eclipsing Labor’s planned expenditure, and would allow it to spend up to $12.4bn more in 2026-27 and up to $8.4bn more in 2027-28 than compared with the forecasts in the mid-year budget.

The analysis does not suggest spending will increase under a Dutton government but that the spending limit – one of the few detailed promises made by the ­Coalition on fiscal discipline – was not evidence that the budget position would improve with a change of government.

Liberal sources on Wednesday night said Peter Dutton’s “full fiscal strategy” would be released ahead of the election, amid growing pressure on the opposition to match its rhetoric with detail.

While the Coalition is declaring it will be lower taxing and spending than Labor, it has not outlined major savings or revenue measures that would put the budget on a pathway to a structural surplus.

Independent economist Saul Eslake said the analysis showed voters were “yet to see any credible proposals from the Coalition that they would bring the budget back to balance sooner than the present government has said that they would”.

Veteran budget analyst Chris Richardson said the spending ­limits would do little to help the budget in its current state.

“This isn’t a bad rule, but it doesn’t help in the particular circumstances at the moment,” Mr Richardson said.

“If we want to keep our social contract adding up, then that requires some combination of cutting spending and raising taxes.

“Neither side is talking about the things that will help make the budget add up in the long term.”

After Labor achieved two consecutive budget surpluses, the mid-year economic and fiscal outlook forecast a four-year $22bn blowout in the bottom line and projected the budget would remain in deficit for at least a decade.

Opposition Treasury spokesman Angus Taylor said the fiscal rules would prevent spending blowouts seen under Labor, arguing that spending under Labor was increasing three times faster than economic growth.

“If you grow your revenue, while reducing or maintaining your costs – you will increase what you have left to save,” Mr Taylor said.

“Labor has no budget rules, no budget discipline, and has spent $347bn since coming to office.

“Labor is currently increasing spending by three times faster than the economy is growing.

“They are spending $12 for every $1 saved.”

Mr Taylor said budget rules were a “starting point” to better economic management, but is yet to detail how the Coalition would improve the nation’s fiscal ­position.

“To get back on track and back to basics, Australia needs to restore fiscal discipline and strong budget rules,” Mr Taylor said.

Despite the lack of policy to back up rhetoric on lower tax and spending under a Coalition government, the Prime Minister on Wednesday accused the Opposition Leader of planning to oversee deep cuts to the public service, childcare, health, the National Disability Insurance Scheme and wages.

Mr Albanese moved to weaponise Mr Dutton’s declaration at the weekend that the budget needed “economic surgery”.

“That means taking surgery and taking drastic action to provide a prescription, which is to cut cost of living support,” Mr Albanese said. “By that he means cutting wages growth off at the knees.

“He means transplanting new taxes on Medicare.

“He is prescribing a lethal dose of cuts to cost of living support.

“His idea of economic surgery isn’t a scalpel, it’s a sledgehammer or a chainsaw.

“He wants to take those cuts to Medicare, to cost-of-living support, to housing, to all of these measures.”

Mr Taylor has separately pledged to implement a 23.9 per cent cap on tax receipts as a share of the economy, reintroducing a measure self-imposed by the ­Coalition during its nine years in power.

Labor has not breached that cap during its time in office, with the tax-to-GDP ratio rising as high as 23.7 per cent during 2023-24 – a 16-year high. The last time the 23.9 per cent tax-to-GDP level was eclipsed was during the Howard government in 2005-06.

Jim Chalmers has dismissed the measure, arguing it was arbitrary and motivated by political reasons.

Opposition finance spokeswoman Jane Hume on Wednesday repeatedly refused to give details on how the Coalition would save money, other than criticising Labor for overseeing ballooning growth in the public sector, where the number of full-time equivalent roles has surged by 36,000 since mid-2022.

Pressed on the opposition’s plans for the public service, and whether a reduction in the number of federal bureaucrats would be achieved, Senator Hume would not reveal the Coalition’s policy on the matter.

“We’ll go through and make sure that the services can be delivered,” she told ABC radio.

“We’ve said we will not be making cuts to essential services. We’ve said that over and over again, so the Prime Minister can say what he wants.

“But the fact is, the public service has increased by 20 per cent and on top of that, the Finance Minister has approved a … more than 11 per cent pay rise for public servants, and yet hasn’t accounted for it in … the budget.”

George Washington University assistant economics professor Steven Hamilton regarded a spending limit as “better than nothing”, arguing it allowed a treasurer and finance minister to push back on spending demands by their colleagues.

“The problem is if you breach the cap [when you’re] spending is beyond your control … You shouldn’t be cutting other expenditure just because you’ve had some random thing happening that leads to a blowout,” he said.

“(And) if you had some huge underspend, you don’t really want the government to be like ‘We can spend that money because we’re below our spending cap’.”