Thursday, July 29, 2010

Coalition might increase deficit, debt

THIS election campaign is changing colour more rapidly than Julia Gillards hair. Last week, both parties pledged, hand on heart, this would not be an election spendathon. But if its not that, what do you call it?

On Monday in Queensland, both party leaders pledged roughly $1 billion of new spending, in one day: both pledged about $750 million to build a rail bridge in Brisbane without a benefit/cost analysis, and Abbott pledged another $240 million to build a bypass of Mackay.

Yesterday, Labor took a break owing to certain problems with cabinet leaks, but the Liberals ploughed on.

The spend-of-the-day award indeed, the big spend of the campaign so far went clearly to Tony Abbott, as he pledged to cut the company tax rate from 30 per cent to 28.5 per cent from mid-2013.

This one-upped Labors pledge to cut it to 29 per cent, and neutralised Labors campaign against Abbotts impromptu decision in April to make employers, not taxpayers, pay to lift maternity leave to six months.

That decision, made without reference to shadow cabinet, could now be reversed. Shadow Treasurer Joe Hockey said yesterday the Coalition would have more to say on the issue later in the campaign clearly implying that it would be different to what it has said since April.

Fine, but if so, well be paying for it. And who would pay for his cut in company tax?

Well, we would. Under Labors plan, the cut in company tax would be financed by the mining tax. The Coalitions cut would come out of general revenue.

And its not cheap. The Coalition estimates it at $2.5 billion in year one, settling down then to $2.1 billion a year. On the four-year basis we usually use, thats $8 billion plus easily the most expensive campaign promise yet.

But isnt it financed by their plans to cut spending in other areas?

In theory, yes. In practice, the cuts are far smaller than the Coalition claims, and now run the risk of being overwhelmed by its spending promises.

The Coalition claims $24 billion of spending cuts. But $9 billion of that is pledging not to spend money it wont raise by not having a mining tax. How can you save money you dont receive? Thats phoney.

Are you sure Labor will receive it?

No! It depends entirely on mineral prices, and who knows what they will be?

Analysts Wood Mackenzie forecast that the coal half of Labors tax could raise as little as $7.4 billion over the next five years. If so, the revenue will be well short of the $6.5 billion a year target.

But Labors numbers include some safety buffer. The Coalition has none. Take out that $9 billion, and its claimed savings shrink to $15 billion. But $5.6 billion of that is savings from programs it plans to replace with new spending, so you cant book gains from that.

That leaves roughly $9 billion of real savings over the next four years mostly $4.4 billion from not replacing public servants who leave, and $2.3 billion from cutting climate change programs.

The Coalition tells us it will reduce the deficits and debt. But this way, its in danger of increasing them.