Master magician Swan's budget sleight of hand

THE $80 billion savings the Treasurer claims credit for are more spin than substance.

WAYNE Swan's political alchemy must stop. He can't be allowed to get away with describing tax increases as budget savings to firm up the misleading statement that he has instituted "the fastest fiscal consolidation since the 1960s".

It is a fiscal consolidation only because the government blew the budget during its first two years in power - some will say justifiably, fighting the global financial crisis; others will say recklessly, with poorly targeted and unnecessary spending. You can decide.

But when the government spruiks that it has implemented more than $80 billion in savings, as it did during the election and as Swan again did during the week on ABC1's The 7.30 Report, that rather impressive number includes policy decisions most of us wouldn't dream of putting in the savings column of a balance sheet.

Of the savings Swan claims credit for, he includes every tax increase this government has implemented or intends to implement (alcopops taxes, the mining tax, tobacco taxes, you name it). He even includes money raised such as a $150 million one-off dividend extracted from Australia Post in the 2008-09 budget.

The political alchemy doesn't stop there. Swan's so-called savings includes $555m raised by increasing luxury car taxes, $402m from increasing visa application charges and, in the most recent budget, $275m by amending the arrangements for ethanol (in other words, more fuel taxes).

The list goes on and on.

And please don't dismiss this as me scratching over budget documents trying to catch the Treasurer out. The list has been put together by the parliamentary library's economics division, an independent research arm of the parliament. The research shows that more than half of the savings Swan so proudly claims to have achieved are actually revenue parts of the budget, not expenses that have been reined in.

But again the political alchemy doesn't stop there. Of the just more than $40bn worth of expenses that have been reduced and therefore could be regarded loosely as savings, some are gross rather than net savings, which makes it likely that in other parts of the budget expenses have increased to counter the cuts Swan claims credit for.

For example, he includes a 30 per cent cut to government and opposition political staffing costs in the $80bn plus of savings, even though some of those savings have been offset with high turnover costs and consultant costs going up. That's called fiddling with the figures.

It is no wonder when Finance Minister Penny Wong was asked in Senate estimates to itemise the asserted savings she took the question on notice. She still hasn't come back to the shadow assistant treasurer, Mathias Cormann, with the details he requested.

Thankfully the parliamentary library has.

Even some of Labor's own MPs privately laugh at the dodgy accounting. However, they add that it is politically necessary because the opposition overstates the size of the deficit, which despite building to hundreds of billions of dollars, is only 6 per cent of gross domestic product, very small by international standards.

That's a fair point, which is why Swan is applauded on the world stage for the strong economic position in which Australia finds itself. We can argue about the extent to which credit for that should go to John Howard and Peter Costello, or the robust features of the Australian economy, or the work of Labor in shielding Australia from the global financial crisis with its stimulus.

The credit should properly be shared.

There is no denying Swan receives accolades internationally. He is always asked to speak early in the roster of Group of 20 finance ministers.

US Treasury Secretary Tim Geithner sought Swan out to co-author an opinion piece this week in The Wall Street Journal.

Back home, University of NSW vice-chancellor Fred Hilmer has heaped praise on Swan's role in Australia's "miracle economy". And even his one-time enemy inside the Labor Party in Queensland, Peter Beattie, used this newspaper recently to praise Swan's performance.

Swan may have had a shaky start in the Treasury job, but his performance has improved and with that so has the respect he receives in some quarters, which only heightens his foolishness in falsifying his record with inaccurate claims of savings and fiscal consolidation.

The simple fact is Swan has not presided over more than $80bn of budget savings, not even close.

He certainly hasn't instituted the greatest fiscal consolidation in 40 years, as he so immodestly claims.

Such claims fuel doubts about other areas; for example, the 2 per cent spending cap he has instituted, which applies until such time as the budget is back in surplus. It will become a tough yardstick to adhere to in the years ahead and he should be applauded for putting it in place. But it is more of a hardship for the future than the present.

It is a spending cap in real terms, which makes it appear a little tougher than it in fact is.

And it ceases to apply after the first budget surplus is achieved, which means if we do get back to surplus earlier than originally forecast, Swan will be able to move above the spending cap earlier than he forecast, even if the debt accumulated hasn't started to be paid back.

But a 2 per cent spending cap when the economy is growing at 3 per cent or 4 per cent - once the stimulus has been completely wound back - will be tough to maintain, assuming we aren't back in surplus before that happens.

However, sticking to a 2 per cent cap is next to meaningless in the short term: how could Swan not keep growth in the budget to 2 per cent or less when we are coming out of a period of record spending to combat the global financial crisis?

It is hardly fiscal discipline to wind back spending for future budgets from crisis-level spending when the government was trying to stimulate the economy.

Doing so wouldn't require cuts to the public service or middle-class welfare, the sort of tough decisions that really lead to fiscal consolidation.

So we have more than $80bn of claimed budget savings when in fact more than half of that effectively came from increasing taxes. Some of the rest has been offset by other spending, and the tough 2 per cent cap isn't as tough as it seems, and it only becomes tough once the stimulus is fully withdrawn, by which time the budget could be back in surplus anyway, meaning it no longer applies.

All politicians spin; that's their job. But Swan is doing more than spinning. His $80bn in savings isn't spin, it's bullshit.

ALAN Jones was on the radio yesterday morning, once again railing against something I wrote during the week, pleading with his listeners not to read my scribblings. If he wants to lower his blood pressure perhaps he should take some of his own advice.