Friday, November 26, 2010

Similarity at a price as rivals say surplus largely untouched

THE striking thing about the costings by Labor and the Coalition of their election promises is that with three exceptions they look so similar.

The Coalition plans a net $3.644 billion over five years in new recurrent spending, paid for by taking $3.794 billion from contingency and other funds. That would leave it with $150 million to spare.

Labor would spend a net $4.096 billion, paid for by taking $3.996 billion from contingency and other funds. That would trim $100 million over five years from budget surpluses.

Whoever is in government will be spending about $250 billion over those five years. On these costings, Labor plans to spend 0.1 per cent more than the Coalition. It's a virtual dead heat.

Difficult as it is to believe after the big spending plans of the past month, each says it has left the budget surplus more or less untouched: $800 million or so a year.

How? Many Coalition plans its $1 billion in funds for health infrastructure and regional growth, its 800 new hospital beds and 40 new trains are for eight or 10 years, not the next four. Other plans are back-ended, so that their full cost hits only in 2014. Most of the 500 prison cells promised in its law and order policy, for example, would not operate until 2014.

Both parties raid the hollow log of the contingency funds: on these figures, Labor has emptied out the log in which money was stored for future capital spending.

With the budget's wage and growth assumptions already precarious such as assuming wage rises of 2.5 per cent a year half the contingency funds have gone.

But there are three main differences:

Labor has pledged $3.9 billion of new infrastructure spending, the Coalition just $2.4 billion.

The difference is in schools. Labor would spend $1.8 billion to build 20 new schools in growth areas, renovate 90 others, and build technical education centres and classrooms. The Coalition would spend just $258 million, mostly for small works in marginal seats.

The difference may be more apparent than real. A Coalition government, too, would have to build new schools and fix old ones. There is still money in the log if it wanted to do so. But so far, it has not.

Labor plans to cut $600 million over the next five years through back-office economy measures, while the Coalition plans $1.569 billion of such savings. Its big saving plan is to cut departments' purchasing by 1 per cent.

John Brumby says this would mean cuts in public service jobs. No, it wouldn't. It's not costless, but it's a sensible way to save money.

The two costings come with very different imprimaturs. Labor as government had the advantage of having its policies costed by Treasury. The Coalition went just up the road to a small accounting firm, Yates Partners, not known as experienced policy costers. Its accountant, John Yates, ticked off the costings "based on the information, documentation, supporting assumptions and methodology provided to us by the Coalition".

That's an important qualification, but unavoidable under this system.

We need a better model. The Coalition's proposal for an independent Parliamentary Budget Office under the Auditor-General wins hands down.