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Locking in a surplus with the carbon price pea-and-thimble trick

There’s one minister relieved that the carbon pricing package is locked in, and not for anything to do with emissions abatement or the rough trot the government has endured this year, at least not directly.

For all the complaints about the package being a “carbon tax”, it is forecast to be a net cost to the budget for the duration of the Forward Estimates period (strangely, The Daily Telegraph is yet to work this fact out, thereby missing a wonderful opportunity to declare that Labor is so incompetent it can’t even get a new tax right — perhaps Gemma Jones can look into that?).

When will the carbon price package stop being a net cost to the budget? The Liberals’ Simon Birmingham asked Penny Wong exactly that question in the Senate on Monday, and she declined to answer.

The Rudd government’s final iteration of the CPRS would have been a net cost to the Budget until 2015-16, and not recouped its costs until well into the 2020s. We know that because in the 2009-10 MYEFO papers, the government provided a full fiscal impact for the CPRS out to 2020. All we have for this package is the impact over the forward estimates.

But there’s one year when the package won’t be a net cost to the budget, and that’s its commencement year, 2012-13. Which, by pure coincidence, is the year Wayne Swan has committed to produce a budget surplus come what may. That year, instead of costing the budget over a billion dollars, as it will in 2013-14 and 2014-15, it will provide net $1.1 billion revenue.

Back in May — before the carbon price package was released — the budget forecast a precarious $3.5 billion surplus for 2012-13. There hasn’t been a revision since then (the next one will be MYEFO) so we haven’t been able to see the impact of the carbon price package — “modest” Swan described it at the time — on the budget.

The reason 2012-13 is different under the package is because the government moved a big whack of the transfer payment compensation in the package into this year from 2012-13. The ostensible reason was to give pensioners and other people reliant on transfer payments some compensation before prices went up from 1 July 2012. That it helps the 2012-13 surplus by shifting some spending onto this year’s deficit was, presumably, a mere coincidence. Without that shift, the scheme would have cost ~$400 million in 2012-13, a $1.5 billion hit on the surplus. If the revised MYEFO surplus is still of the same order of magnitude as in May, that’s a hefty chunk.

For a surplus so small, every dollar counts, and will count even more after MYEFO revises down growth and revenue forecasts and totes up the impact of the carbon package and other policy changes in the last six months. Few economists think there’s any need for a surplus, and some are concerned about the impact of spending cuts on demand, but the government locked itself into a surplus months ago.

The floods in January were its opportunity to relinquish the surplus goal, and it ignored it. Now, only another disaster — one emanating from Europe — can credibly cover a retreat. Otherwise, the surplus is central to the image Labor hopes it can sell to the electorate in 2013 — none too flash but capable of hard, long-term decisions in the national interest.

A surplus of course doesn’t automatically equate with the national interest. But ever since Labor allowed its opponents to frame the economic debate as being essentially about whether a positive or a negative sign floats in front of the underlying cash balance, it’s been headed for this outcome. Still, most governments are starting to run out of fiscal discipline by the end of their second term. This one might be too frightened to ever get sloppy, and that’s not necessarily a bad thing.

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  • 1
    eric
    Posted Wednesday, 9 November 2011 at 1:43 pm | Permalink

    The Mining Tax could also work in the Goverments favour the same way.Just drag out the payments but still collect the tax.

  • 2
    Damotron
    Posted Wednesday, 9 November 2011 at 3:05 pm | Permalink

    I think the government is starting to grow in confidence. They have the carbon tax passed, the mining tax is next. They have stopped assuming the foetal position every time News Limited or the opposition attacks them. Abbott’s left the country and starting to look vulnerable; Malcolm is counting the numbers as he is carbon friendly. Wayne Swan has his treasurer of the year badge. The whole Kevin Rudd thing is a News Limited beat up. Qantas has done the opposition no favours with their shut down. Labor has lifted in the polls for the last three polls. Laurie Oaks has attacked News Limited papers calling today’s Daily Telegraph headline propaganda. I think the tide is turning.

  • 3
    Hugh (Charlie) McColl
    Posted Wednesday, 9 November 2011 at 3:06 pm | Permalink

    Whether you see the government’s steely discipline in the 2012/13 surplus matter as “.. not necessarily a bad thing”, depends entirely on whether you are a ‘glass half full’ or ‘glass half empty’ sort of person.
    I want to see Julia Gillard’s government succeed. I’m not interested at the moment in considering an alternative, I want this government to get on with pulling things into line despite the glass half empty rhetoric spruiked all around the world - but particularly in the daily Australian media. I’m certain that Australia has the human and other resources necessary to weather some economic rough and tumble but our government must drag a big section of the population along with it if we are to do more than just “weather”. I reckon Wayne Swan’s never-wavering approach to a surplus is one important plank in that trust offensive. Labor has two years to project itself as the party which took risks, political risks, to bring about reforms which no one thought would be possible. Steely discipline may become Julia Gillard’s most memorable characteristic and therefore her greatest asset.

  • 4
    CTar1
    Posted Wednesday, 9 November 2011 at 3:48 pm | Permalink

    The Government should now be dealing with water. It is a shame that Tony Burke is not able to face direct opposition and simply say ‘you’re wrong’ - he’d rather hide behind others.

  • 5
    Son of foro
    Posted Wednesday, 9 November 2011 at 4:23 pm | Permalink

    A surplus of course doesn’t automatically equate with the national interest.

    If we start teaching this to Grade 1 students across the country we may just end up with an intelligent electorate by the middle of the next decade.

  • 6
    Mark from Melbourne
    Posted Wednesday, 9 November 2011 at 4:51 pm | Permalink

    This Government cant win no matter which way the dice falls with you BK. It’s either a surplus is bad so the government is stupid to pursue one.

    Or a surplus shows discipline in these troubling times, but not for this government, it just says they are too frightened to get so sloppy.

    Try taking a position and arguing it rationally pls.

  • 7
    GocomSys
    Posted Wednesday, 9 November 2011 at 5:25 pm | Permalink

    Just finished the first six posts. Pretty much my sentiments. No need to elaborate further. Good on you. Signing off.

  • 8
    Kristen Smith
    Posted Wednesday, 9 November 2011 at 5:55 pm | Permalink

    Benard Keane I am sure dreams of a invite to Davos. Everything he ever writes is straight from neo liberal tinged with green talking points that is the lingua franca of that resort town .

    Hence he can come up with above quote ‘Few economists think there’s any need for a surplus’.

    I am sure that was the standard neo liberal talking point for years in Greece and Italy.

    Sadly for Keane’s hopes, dogs, not even as in his tragic case, guide dogs are allowed at Davos.
    The Muslim guests might take offence.

  • 9
    CTar1
    Posted Wednesday, 9 November 2011 at 7:08 pm | Permalink

    I think the context may have been ‘in this year’.

    Dogs, Muslims and Davos all having an opinion on European economics - well I never!

    Bernard can be a little out there sometimes. Need extra commas.

  • 10
    Daryl...
    Posted Wednesday, 9 November 2011 at 7:17 pm | Permalink

    Few economist think there’s any need for a surplus.” What garbage. This is the same sort of line as “We are not taxed much when you compare us with the OECD” and the belief that not having much debt is actually a great time to get a heap more debt.

    Australia is already very highly taxed, our costs are similar to those of Europe without the advantages of living close to the rest of the world.

    These taxes are wasting away our national advantages, the god given advantages that have made us be able to claim to be the lucky country. A situation that forces the left into such guilt spins that they need to tax us into the dark ages.

    Keep clawing down those that work hard, continue to have governments who side with unions against business, and continue to tax us into the ground… sooner or later (and probably sooner) the only people left will be the bludgers that think this form of parasitic thinking is actually of benefit to us.

  • 11
    antena
    Posted Thursday, 10 November 2011 at 12:03 am | Permalink

    A really good article.

    I’ve been wondering what secret-weapon Wayne might have, and I think your analysis nails it. No talk of polls to boot.

  • 12
    Peter Ormonde
    Posted Thursday, 10 November 2011 at 5:53 am | Permalink

    Thanks for sharing your feelings there Daryl … very entertaining. I particularly liked the “god-given advantages” bit - just lovely. I must have missed that chapter in my history classes.

    Be interested in any facts you might want to sprinkle about to explain this lack of enthusiasm for living in this cruel, brutal and “disincentivising” country. Seems strange that people are literally dying to get here really, given the appalling servitude and exploitation you are being subjected to.

    Perhaps we could find you a role in “stopping the boats” … a speaking tour of Afghanistan etc explaining how oppressive and unbearable life here has actually become.

    Of course BK’s comment re the surplus is spot on …. but this is lost on those who think that one must “balance the books” and who regard the national economy as one would the corner shop. It’s a bit more complex than that Daryl. Worth finding out actually. Make you much happier.

  • 13
    AR
    Posted Thursday, 10 November 2011 at 6:26 am | Permalink

    Daryl - the phrase “lucky country” was coined by Donald Horne to mean that Oz manages “despite mediocre leaders” but the ironic litotes has been abused ever since.
    Other cliches straight from the NuRite script, false or mendacious juxtapositions - “hard working” vs “unions”, “highly taxed” simply untrue (numerically/factually - damn those nasty numbers), “god given” akshally stolen from the common weal (twirls waxed moustache), “bludgers”, “parasites”, all the buzz words, no content.
    Fing is Daz, ya gotta do more than throw words into a sentence and hope that they connect to the reptilian brain, by-passing the neocortex.
    PO - re your seeking the phrase to describe Suzy ORAC’s “I feel, ergo it is true” condition, is it “pathetic fallacy”?

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