Labor fails itself by clinging to 'surplus' sideshow

WAYNE Swan's projected budget surplus is so contrived, so satirical, that it could easily have been scripted by the writers of the ABC series The Hollowmen.

It's too obvious in its satire, however, to have been worthy of a loftier Yes Minister script.

The most depressing aspect of the sideshow over whether we will or won't get back into surplus by 2012-13 (other than the opposition's even less credible approach) is that had Labor not set up the meaningless construct, it would have a reasonable economic story to tell.

Basically, short-term spending with long-term fiscal consolidation is the right message for the government to send markets when sovereign liquidity is becoming a serious issue.

This is what distinguishes the looming financial crisis from that of 2008, justifying the difference between pump-priming then and fiscal caution now.

So why has Labor diminished itself by simplifying its economic goals to a paper-thin surplus target? Because none of the front-line players in this government has the communication skills of a Paul Keating or a Bob Hawke to sell more complicated messages.

It's not the media that needs to stop "writing crap", as the PM so eloquently put it. It's the government that must stop selling crap with its political rhetoric.

The idea any of us should place any stock whatsoever in a surplus forecast of just $1.5 billion for the 2012-13 financial year is beyond parody, all the more so in the context of the 2011-12 blowout in the deficit that helps achieve it.

Initially 2011-12 was projected to deliver a $12.3bn deficit, then it became $22.6bn, and now it is forecast to come in at $37.1bn.

Yet the government is clinging to the surplus target for the next year as some sort of political panacea to its economic credibility.

Worst of all, it hopes to convince us that the surplus target is not a political goal but an economic goal. Swan and co tell us this with straight faces.

In reality the economic consequences of a small surplus, or instead a small deficit in 2012-13, are nonexistent. But that won't prevent semi-economically literate political flacks from poring over the numbers, continually making adjustments to guarantee the 2012-13 budget falls over the artificial surplus line.

Predicting which way the budget is likely to go (or fiddling to ensure it happens) is far less important than the trend lines or the role of cuts and tighter fiscal settings.

Swan knows this, but he and his team of financial ministers treat the public like mugs by narrowing down our understanding of budget setting to the prism of a return to surplus "on time, as promised".

It is lowest common denominator politics. If this government placed as much importance on keeping its word when determining what to do with other policy settings it might be in a better polling position than it is.

The world's greatest Treasurer should be embarrassed by the extent to which the books are being cooked for Treasury numbers to reflect a return to surplus on the timeline first predicted in the 2010-11 budget.

The cartoonists have had a field day.

A tweak to the terms of trade here, an adjustment to the growth forecasts there, not to mention sizable shuffling of spending priorities between financial years, and, hey presto! look at that (albeit marginal) surplus sitting there in the forward estimates. Pats on the back all around. It's a joke.

Setting forward estimates for budget figures is not an exact science: far from it.

There is no machine where treasurers input information and after a period of computer thinking, the irrefutable answers are spat back out. The numbers are malleable. And no other treasurer has been as adept at cribbing the independence of Treasury in setting the forward estimates as Swan has.

Indeed the political team Swan has assembled around him in his personal office are past masters at two things: ensuring their boss doesn't land himself in trouble during interview cross-examinations, and blurring the lines between Treasury and the Treasurer's political office.

The irony of the way in which Swan has exposed himself to ridicule with his crusade towards a 2012-13 surplus is that the broader settings that allow him to cook the books to make it happen "on time, as promised" are quite good.

Of course Labor could have spent less, saved more and made deeper cuts to certain government programs. Swan has nonetheless imposed fiscal rules to ensure the size of the deficit over the forward estimates is tracking downwards (which it is).

And while he inherited no net debt from the previous Coalition government, reform in the back half of the Howard years tapered off and 2008 did usher in a revenue-sapping financial crisis as an unwelcome beginning to Labor's time in office.

Different global conditions and greater domestic willingness to make tough decisions would have sped up the process of fiscal consolidation, but that doesn't detract from the fact Swan has largely got the basics right since assuming the treasurership.

Mind you, it's hard not to get those basics right when one considers Australia's comparative advantages as a national economy.

Both men would loathe the comparison, but there are similarities in the way Peter Costello approached budget forward estimates when he was treasurer and the way Swan is approaching them now.

Swan is shuffling around dollars to help achieve his first full financial year surplus as Treasurer, and adjusting economic settings accordingly.

Costello took the same approach to hiding the dollars in his forward estimates to stop John Howard from spending the money before it actually registered in government coffers.

A trip down memory lane reminds us that Costello constantly underestimated revenue in his budget forecasting.

The difference, of course, is that wildly inaccurate forward estimates on the upside causes less political embarrassment than on the downside.

For Swan, since 2008 it has been all downside.

Just another reminder how rubbery budget forecasts are, and hence why placing so much political capital on a timeline for returning to surplus is fraught with danger.

Peter van Onselen is a Winthrop professor at the University of Western Australia.