Former treasurer Peter Costello tells Coalition and Labor how to do it

Peter Costello has offered a masterclass in economic management, lashing both the Coalition and Labor.

Former federal treasurer Peter Costello has a new book edited by Tom Frame titled Back From The Brink, 1997-2001. Picture: Stuart McEvoy

Peter Costello has offered a masterclass in economic management, lashing both the Coalition and Labor for excessive spending and taxation, and lamenting the lack of fiscal repair over the past decade.

Writing of his time as treasurer in a new book edited by Tom Frame, Back From The Brink, 1997-2001 (UNSW Press), Mr Costello argues the budget would be in surplus if governments had the same commitment to fiscal consolidation as the Howard government.

“Revenue is a little higher, and payments a little lower, than they were when the Coalition was elected in 1996,” he writes.

“The government’s current plan out to 2020 is to balance the budget through increased tax revenues. This was not the Coalition’s approach in 1996.”

He notes the only other treasurer to achieve substantial fiscal consolidation, and deliver surpluses, was Paul Keating from 1987-90. “There has been no comparable fiscal consolidation since,” Mr Costello writes. “Our fiscal journey over the past 10 years has been bad, although the starting point in 2007 was extremely strong.”

He added that it was silly to blame the opposition for failing to repair the budget given he also dealt with a recalcitrant Labor Party and a hostile Senate. He adds that the mining boom, which boosted revenues, did not begin until after he had already returned the budget to surplus.

“We did not have a majority in the Senate and our parliamentary opponents gave us no quarter,” Mr Costello recalls. “The idea that in ‘the old days’ the opposition co-operated to allow a government to implement its policy is fanciful.”

He says governments must be determined and disciplined, with strong leadership and cabinet buy-in, when working systematically to reduce the budget deficit.

“The difficulty of cutting expenditure should not be underestimated,” he says. “It usually requires legislating through a hostile Senate that is sometimes unwilling to negotiate on a reasonable basis.

“Cost-cutting also comes with political pain and the payoff is more in the medium and longer term when the incumbent government achieves very little electoral gain for its discipline. I know because I have been there.”

However, Mr Costello also notes that economic discipline began to fray in the latter years of the Howard government. “John Howard was genuinely unsettled by the political appeal of the new Labor leader, Mark Latham,” he writes. “The promises … made to counter Latham’s pledges were ­excessive and unnecessary.”

The essay, based on a speech given last November, includes a strong critique of the Keating government’s promise that the budget was in surplus prior to the 1996 election. The book, the second in a series of essays on the Howard government, will be launched next month.