ETS axing put budget in the black - scrapped scheme kept lid on costs

THE Rudd government would have broken its self-imposed cap on spending growth without the money it saved by scrapping its emissions trading scheme, the budget papers reveal.

Amid a patchwork of conflicting budget figures, definition changes, and the deliberate withholding of data, an Age analysis found that scrapping the ETS made the difference in the Rudd government meeting its spending cap.

The budget papers show that in 2012-13, even on the smaller of two very different sets of budget numbers, the emissions trading scheme would have added $7.1 billion to spending.

That would have lifted real spending growth in that year on the accruals measure in which all detailed budget information is given from 2 per cent to 2.9 per cent.

As the central pillar of its strategy to return the budget to balance as soon as possible, the government last year pledged to temporarily restrain growth in future outlays to 2 per cent in real terms.

But with spending on age pensions alone set to rise $3 billion in 2012-13, hospitals spending $2.1 billion, GST payments $2 billion, and infrastructure works by $1.7 billion, the government was clearly on track to blow that cap without big spending cuts.

The ETS eventually became that spending cut. When the government included the ETS in future budget estimates last year, its spending measure included the cost of free permits for electricity producers and what it called "emission-intensive trade-exposed industries". Its budget update last November said ETS spending in 2012-13 would be $11.8 billion.

A similar number was implied in a release on budget day by the Department of Climate Change and Energy Efficiency. It put the five-year saving in spending from scrapping the ETS at $30.6 billion.

But budget paper two, issued the same day, showed the saving in precisely the same period as just $18.3 billion. Sources say the difference was because it was decided that the cost of free permits by then, almost $5 billion a year should not be counted as spending.

Access Economics director Chris Richardson told a business luncheon yesterday that while the ETS was not scrapped for budgetary reasons, its abolition aided the budget.

"If they didn't get rid of the ETS, their spending would have bust the 2 per cent cap," Mr Richardson told the luncheon. "And if the ETS comes back, some spending needs to be junked to remain within its cap."

The government yesterday declined to respond. But officials noted that this year's budget papers defined the spending cap as applying to cash spending, rather than the accruals measure.

But the budget papers do not spell out the year-by-year cash savings from scrapping the ETS. Finance Minister Lindsay Tanner refused repeated requests from The Age this week to make the figures public.

Meanwhile, Tony Abbott's proposal to cut public service numbers through a two-year hiring freeze has outraged bureaucrats, who say staff reductions would affect essential services.

In his response to the budget, Mr Abbott this week said the coalition would save $4 billion by not replacing 12,000 public servants who retired or resigned. The Community and Public Sector Union's Nadine Flood said "every time someone leaves the public sector, their work stops getting done". And Andrew Podger, a former public service commissioner, warned the proposal would leave a staffing gap that would last up to a decade.


REAL GROWTH IN BUDGET SPENDING

WITH ETS WITHOUT ETS

2010-11 0.5% 0.5%

2011-12 0.3% 1.1%

2012-13 2.0% 2.9%

2013-14 1.9% 1.9%

BUDGET PAPERS