Trickery helps balance a budget, but to what end?

Lobbecke

"WELL done Penny." That was Wayne Swan's congratulations to Finance Minister Penny Wong for delivering final budget numbers for the 2011-12 financial year that were extremely close to those predicted in the May budget.

In May, we were informed that the deficit would be a tick over $44 billion. It turned out to be a tick under. Well done Penny.

But before those of us not engaged in the fine art of political spin partake in the sort of back-slapping the Treasurer did, it's worth remembering just how insignificant the parallel really is. Numbers handed down in May didn't greatly change over the two months remaining in the financial year. Wow.

More important is the loading up of debt for the 2011-12 financial year on the actual numbers, compared with what was forecast in 2010. Just over two years ago, Swan told us the deficit for 2011-12 would beabout $13bn. Last year, he revised that figure upwards to $22bn. But when Swan handed down his budget earlier this year, the figure had doubled to $44bn.

Well done Penny, for not blowing that figure out even further in the two months that was left in the financial year. Swan should think about a post-parliamentary career writing scripts for a new series of Yes Minister. If he continues taking himself seriously, the words would flow on to the page with ease.

As astounding as the blowout in the 2011-12 budget numbers from $13bn to just less than $44bn has been, it's the political efforts to get back to surplus the following financial year that bring the tricky accountancy of the government into full view.

Loading up the year before the return-to-surplus year with debt is a clever way of holding the fiscal line. It's all part of Swan's preparedness to compromise the integrity of the budget in a bid to win cheap political points. The irony is that he is misguided about the political return he will reap for the government, but more on that later.

We know how artificial both the budget blowout for 2011-12 and the return to surplus in 2012-13 are when we look at the growth forecasts for the last financial year. While there may have been an upsurge in debt of more than $30bn for 2011-12 in just two years of forecasting, economic growth predictions in the budget didn't much change.

In 2009-10, growth was predicted to be 4.5 per cent. For the following two years it was predicted to be4 per cent. Yet despite such consistency, the 2011-12 budget blew out by more than $30bn. Well done Wayne.

Compromising the integrity of the budget isn't hard if you are prepared to do whatever it takes to achieve a surplus, despite the global economic outlook or a domestic unwillingness to make deep cuts to restore fiscal balance.

Moving spending initiatives between financial years is a neat accountancy trick. Bring forward spending initiatives to load up the deficit in the financial year ahead of the return to surplus. Delay defence spending, whether it's on warships or planes. Sell assets such as office towers and lease them back to inflate the short-term numbers.

These and many more tricky tactics can balance a budget if politics dictates doing so matters. But it does nothing to fix the long-term structural deficit. In fact, fixing the structural budget deficit (something John Howard never did) is made even harder when new spending initiatives are announced without the means to pay for them also being spelt out.

The National Disability Insurance Scheme. A better way of providing taxpayer-funded dental care. More money to meet the education needs of the nation. These are worthwhile initiatives, absolutely. But paying for them matters more than announcing them, unless you are part of a desperate government seeking political redemption.

As outraged as I might be at having to bear witness to this government getting the hopes of the needy up by making such unfunded pledges (having cared for my mother, who would have been eligible for the NDIS, I know how painful false hope can be), the short-term politics of doing so is (unedifyingly) sound.

Wedge Tony Abbott into supporting such schemes (leaving him with the task of finding a way to pay for promises if elected), or crush him as uncaring if he opposes them. It's a political recipe worthy of the NSW Labor Right. Well done Julia Gillard. The PM has come a long way since the heady days of left-wing politicking in Victoria.

But let's not confuse tactics with virtue. The deeply ingrained social liberal in me would love to see state welfare measures designed to truly imbed egalitarianism. But the realist recognises that global financial constraints in years to come - given wobbly financial markets and the ageing of Western nations - means that we have to watch our spending.

The opposition's Treasury spokesman Joe Hockey is right: the age of entitlement must come to an end. Governments are (sadly) limited in what they can do for the individual citizen. They must be selective. They must be prudent. Let's just hope Hockey puts his rhetoric into practice in government, something the opposition hasn't done so far.

The funniest thing about Swan's deeply political bid to return the budget (artificially) to surplus next year is that it won't win him one vote. It is not just a flawed economic strategy; it's a flawed political one, too.

Labor governments do not win applause for balancing the books, certainly not when they cook them to do so. Certainly not when they blow out the deficit the year before to do so.

Everyone should watch with good humour when the Treasurer froths at the mouth next May when he doesn't secure the accolades he (honestly) believes he deserves for handing down a budget surplus (if he gets there).

It will be a chapter worth reading in his bitter post-parliamentary memoir about how misunderstood he was (although after reading Postcodes I'm not sure Swan has a long-form memoir in him).

This government has confused the reforming failures of the second half of Howard's time in office with the alleged successes of its own time in power. Howard ran out of puff, but Labor didn't use its political capital well on returning to office (and Kevin Rudd must take much of the blame for that).

Finally, a few uncomfortable facts that puncture Labor's artificial narrative of economic success.

"Savings", as Labor MPs keep referring to them, include tax increases, not just spending cuts. Average voters would consider such rhetoric tricky.

Achieving a lower taxation spend as a percentage of GDP means little when the budget is constantly being blown via record deficits. Were such spending contained within the parameters of the budget, the tax to GDP ratio would be dramatically changed.

The efficiency drive by Swan that stipulates spending growth cannot exceed 2 per cent is not the fiscally conservative move the Treasurer claims. When revenue writedowns hammered the budget courtesy of the GFC, cuts to spending were called for, not cuts to the extent of the increase in spending. There is a difference.

The World's Greatest Treasurer is lucky enough to be in charge of the world's greatest economy, courtesy of natural advantages few other nations possess. That, not the efforts of political elites, explains Australia's prosperity.

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