Peter Costello’s final Budget delivered in May 2007 made the following cash surplus predictions:
- 2007-08: $10.6 billion surplus
- 2008-09: $12.7 billion surplus
- 2009-10: $13.8 billion surplus
- 2010-11: $12.4 billion surplus
The outcomes actually delivered by the Rudd government were as follows:
- 2007-08: $28.2 billion surplus
- 2008-09: $27.1 billion deficit
And the latest predictions revealed yesterday were as follows:
- 2009-10: $57.1 billion deficit
- 2010-11: $40.8 billion deficit
- 2011-12: $13 billion deficit
- 2012-13: $1 billion surplus
- 2013-14: $5.4 billion surplus
One of the key variables that influences the overall headline surplus or deficit figure is the treatment of unfunded public service superannuation liabilities.
Given that private companies are compelled by law to fully fund their superannuation liabilities, at the very least you would think the federal government would provide a big enough Budget allocation to keep the liability stable.
That wasn’t the approach adopted by Peter Costello who in his first 10 Budgets allowed unfunded super to blow out by $29 billion to $98 billion. As Crikey pointed out at the time, this rort meant that Costello effectively over-stated the cumulative surplus across his first decade by $29 billion.
As the China boom started delivering big surpluses, the Howard government handed out meaningful personal income taxes and committed to belatedly plug the unfunded superannuation liability by establishing the Future Fund.
Alas, in Wayne Swan’s first Budget in May 2008, Labor walked away from this commitment, although Anthony Albanese told Crikey in the lock-up press conference the Future Fund would be fully funded by 2020.
That commitment seems a long way from being fulfilled given yesterday’s Budget predicts public service super liabilities will blow out from $123 billion in June 2010 to $140 billion by the end of 2013-14.
The Future Fund had net assets of only $67.6 billion as at March 31, so it is presently $55.4 billion unfunded. And with liabilities rising by $4 billion a year, there appears limited prospects it will ever be fully funded.
Just as the Greeks are having to slash pension payments, so too will Australia one day, especially the ludicrously generous military schemes, given they are fundamentally unsustainable.
Most of the media completely ignored this huge change to Future Fund commitments by Labor, although The AFR did manage a brief on page 24 of its Budget lift-out.
Given that The AFR is owned by a company that went through its own debt scare last year, it is remarkable to read commentary in today’s paper making light of Australia’s unsustainable public sector liabilities.
Tony Harris, the former auditor-general of NSW, Australia’s most financially crippled state, opened today’s column as follows: “If the opposition carps about Commonwealth net debt again, you ought to complain.”
Brian Toohey parroted almost an identical line, opening with: “The Budget is in such rude good health that the coalition will look deeply silly if it keeps banging on about government debt.”
The Rudd government was handed $58 billion of gross bond liabilities by Peter Costello and it has now ballooned $139.2 billion courtesy of this staggering list of 147 debt auctions to the markets since December 2007.
How can any credible commentator dismiss such a debt blowout when the Budget deficit is predicted to hit a combined record deficit of $97.9 billion in the two years to June 30, 2011.
Besides, any assessment of Australia’s public sector financial strength must acknowledge our relatively small foreign reserves held through the Reserve Bank, as John Durie noted in The Australian today.
It was reckless of the Rudd government to extract a record $5.2 billion dividend from the Reserve Bank in 2009-10 when our global ranking on foreign reserves in a pathetic 39th, behind the likes of Thailand, Indonesia, Nigeria, The Philippines, Iraq, Iran and Romania.
The other variable that can’t be ignored is that Australia has the biggest second tier of government in the world and the states are collectively living beyond their means to the tune of almost $1 billion a week at the moment.
And with almost $1 trillion in foreign debt fuelled by a huge current account deficit, it is misleading to portray Australia’s unsustainable debt-financed economy in such a positive light.
The Australian public sector is living beyond its means such that big tax rises and spending cuts are inevitable.
We’ve seen the big tax hit at the resources sector, but Labor is doing virtually nothing about Australia’s huge middle-class welfare system, which sees Centrelink with a staggering 8 million “clients”.