Locking in a surplus with the carbon price pea-and-thimble trick
Forgetting cutting emissions - the carbon price package has a shorter term benefit for the government. There's one minister relieved that the carbon pricing package is locked in, and not for anything to do with emissions abatement.
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.