By Stephen Mayne

Seeing
as we’ve been locked out of the budget lock-up by Peter Costello and
won’t be able to adopt our normal role of being quick with commentary,
thereby influencing the mainstream media, it’s worth setting down some
performance criteria by which Australia’s most influential email list
should judge the 2006-07 budget.

For instance, I reckon
the Treasurer will flick the rhetoric this year and declare that the
Commonwealth is now finally forecasting it will be worth something by
2008 or 2009. For the past decade, Cossie has sucked in everyone by
keeping the debate on “net debt” and “budget surpluses”, while ignoring
a $29 billion blowout in unfunded superannuation liabilities.

The
Future Fund is a belated attempt to plug the super black hole and will
be integral for future balance sheet analysis when asking the vital
question: what is the Commonwealth Government worth? Go to the bottom
of this page
from last year’s budget and you’ll see a five-year projection of the
Federal Government’s “net worth”, which was negative $32 billion at the
time and projected to fall to just $2 billion by June 2009.

The
unprecedented commodities boom has given the budget an enormous boost
so you can expect “worth something day”, as opposed to Peter Costello’s
illusionary “debt free day” last month, to be brought forward by a
couple of years, provided the windfall isn’t all recklessly given away
in today’s budget.

However, the Government’s balance sheet has
taken one major hit over the year – the reduction in Telstra’s share
price from $4.82 to $3.86. The blue-sky valuation of $33.8 billion or
$5.25-a-share in last year’s budget means the balance sheet should
suffer a $9 billion write-down as the 6.446 billion shares owned by the
government are now valued by the market at only $24.88 billion. Ouch.

If Costello does try the “debt free” ruse today, the press should look at the updated version of this chart
from last year which showed Commonwealth debt had actually increased to
about $45 billion over the previous year. It’s hardly eliminating the
Commonwealth bond market when you’re still running the biggest debt
pool in the country. Even The Australian‘s Alan Wood wrote the
following garbage last year: “But as Peter Costello pointed out again
yesterday, debt has been eliminated.” Not it hasn’t.

The other
ruse to keep an eye on is the blowout in unfunded super liabilities
which is driven in large part by Australia’s expanded military
commitments as defence personnel have extraordinarily generous pensions.

Go to this link
in the 2005 budget and you’ll see from table one that the annual
superannuation expense was steady over the next few years at $2.4
billion, even though unfunded superannuation liabilities were projected
to blow out as follows:

2004-05: $91.1 billion
2005-06: $95.6 billion
2006-07: $98.8 billion
2007-08: $102.0 billion
2008-09: $105.2 billion

When
Peter Costello became Treasurer in 1996, unfunded super was just $69
billion. The honest thing for the government to do would have been to
cap that unfunded liability and take budget hits for whatever was
necessary to stabilise it. If that meant trebling the annual budget
contribution to super from $2.4 billion to $7.2 billion, then so be it.

If unfunded super is projected to rise again in the budget
papers, hacks and commentators should subtract the increase from the
projected surplus in 2006-07 to get a real figure. Now that the ruses
have been telegraphed, it will be interesting to see who still falls
for them.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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