Audit: full of monsters and other creatures usually kept out back in a locked room

When Luke Skywalker and C-3PO enter Chalmun’s Cantina in the first Star Wars movie, the barman says ‘the robot’s not welcome’. This is despite the bar being filled with roughneck freight pilots, oddballs and scary monsters.

The federal government’s Commission of Audit is a bit like that cantina, full of monsters and other creatures usually kept out back in a locked room.

There’s no denying the recommendations of the Commission of Audit were shocking. Some suggest this is an insight into what the government would really like to do if they think they can get away with it. Others suggest it’s all a red herring to make a horror budget look mild in comparison. There is merit in each theory.

The Commissioners made 86 proposals for sweeping spending cuts, ranging from the politically possible to the crazy brave. The devil is in the detail, all 5kg of it.

I was particularly surprised about the obvious lack of thought that has gone into some of the recommendations. For example: privatising the Royal Australian Mint. This would mean it would be in someone’s commercial interests to print more money. What could possibly go wrong?

The report would have you believe that the national budget is in crisis and, if we don’t address our debt with a dose of draconian measures, Third World status beckons.

But is there a budget crisis?

When in doubt consult the soothsayers, I say. On this subject, the modern day soothsayers are the economists – and they seem to be agreeing that this is all a bit of a con.

University of Canberra economics professor, Phil Lewis, says that while it might be legitimate to say that lower debt would free up more government revenue to fund worthwhile projects, you cannot argue that running the economy or low debt implies the economy will perform better. And Australia, he says, is sailing along very nicely when its inflation, unemployment rate and GDP growth are compared to the US, UK, Germany, Japan and the OECD average.

The ratio of debt to GDP is a key indicator of how well a country can repay its debt without incurring more debt. It is similar to assessing your own ability to repay your mortgage each year from your annual revenue without going further into hock.

Commonwealth net debt is about 11 per cent of GDP, the third lowest in the OECD, where the average is 50 per cent. In other words, our national debt is low by international standards.

So what is the justification for a one-off deficit levy, a.k.a. a deficit tax?

Richard Holden, Professor of Economics in the Australian School of Business at the University of NSW, dismisses this proposal with an apt analogy.

“When your local surf club has a fire not covered by insurance it makes sense, painful though it may be, for the members to kick in for the repairs. When the committee says they need a special levy to pay for recurring expenses like petrol for the inflatable rescue boat, there’s a change of committee at the next annual general meeting.”

The National Commission of Audit would hit Tasmanian farmers hard. Among a raft of other unpalatable recommendations, they propose:
abolishing the Bass Strait Freight Equalisation Scheme;
removing the diesel fuel rebate;
scrapping the Rural Financial Counselling Service and the Farm Finance concessional loans scheme;
halving Landcare funding; and
reducing the funding for rural research and development corporations.

Agriculture has been identified as one of the five pillars of the national economy. The federal government has recognised that Australian farmers are facing challenges in being internationally competitive. It doesn’t take a rocket scientist to work out that sweeping changes such as those recommended in the Commission’s report will put farmers even further behind the game.

That’s not to say there is no need for any change. Rather, it is a plea for strategic and informed consideration of the whole picture, recognising impacts and flow-on implications of any changes. It also means that nothing should be immune from consideration; and that both the income and expenditure sides of the budget should be investigated.

Professor Lewis went on to say that there is more to government policy than balancing the budget.

“Policy should be made in the context of a long-term vision for the economy,” he says. “This includes getting everyone who wants to into work, providing the public infrastructure needed to increase productivity, the right mix of private and government provision of health and education, and reform of the regulatory environment.”

Now that’s more like it: those are aspirations we can all understand and accept.

Commentator Greg Jericho, writing on The Guardian’s website, examined the recommendations and commented “anyone recommending our health system follows the US really should not cut paper without supervision, let alone give advice on how to cut the budget.”

In my view, many of the recommendations are at best problematic; and at worst potentially disastrous. Furthermore, it really goes against my grain to be taking advice on saving money from a committee who ran up a bill of 2.5 times the budget they were allocated.

We’ll find out what the federal government thinks on Budget night next week.
TFGA CEO Jan Davis’ Mercury column today