Thursday, May 20, 2010

Savings not as big as they seem

THE list of savings measures unveiled yesterday by Coalition finance spokesman Andrew Robb adds up to almost $47 billion. But the net savings to the budget would be far less.

Of the $46.7 billion in proposed savings, only $7.3 billion over four years would be a clear saving on the budget's bottom line.

The rest of the savings are on the capital account, or on programs to be replaced by new programs, yet to be unveiled.

Of those clearly labelled bottom-line savings, 80 per cent of the gains would come from cuts to the public service ($4.4 billion) and climate change programs ($1.5 billion).

How come? First, almost half of the $46.7 billion would be saved from capital spending, not routine outlays. That includes $18 billion saved by not building the national broadband network, and $4 billion from selling Medibank Private.

But they don't count directly in the budget bottom line, just indirectly through reducing the interest bill. In Mr Robb's figures, his bottom-line savings would be $24.7 billion.

But that's also misleading. Almost half of the savings, $11.8 billion, would come from scrapping the new 40 per cent resource rent tax and all the measures it would fund: company tax cuts, the boost to superannuation, tax cuts for savers, etc.

On Treasury's estimates, that would actually cost money: the resource rent tax would raise more than that. So at best, that leaves $12.9 billion of potential bottom-line savings.

But that's too much too. Of those savings, almost half come from five programs to be replaced by new programs. Mr Robb said some of the replacements would cost more, some less. They include the national broadband network, the skills training program, the trade training centres, computers in schools, and funding to improve teacher quality.

Well, when they tell us about the new programs, we can judge the savings, if any. For now, leave them out.

That leaves just $7.3 billion of cuts to recurrent spending, $4.4 billion of it from a two-year hiring freeze and other cuts to the public service.

Just $2.6 billion of the savings come from program cuts. Of that, $1.5 billion is from scrapping seven programs to tackle climate change, three of them to help poor countries barely above sea level, such as Tuvalu and Bangladesh, to adapt to rising seas.

What is left of the Green Car program would be cut in half, saving $278 million. The e-health initiative would be scrapped ($467 million) along with the GP super clinics ($355 million).

But wait, Mr Robb says: there'll be more.