Last week Crikey’s Bernard Keane designed his fantasy budget  — setting priorities based on economic sense and community need alone. Today, two economists/strategists from the Australian Conservation Foundation offer a greener alternative …

A budget isn’t just about the line items contained within budget papers. The structure of the budget itself tells us much about our priorities as a society. And for the most part, the budget is structurally set up to exclude consideration of ecologically and socially critical issues. This was highlighted in Treasury’s 2011 Intergenerational Report, which noted, “few countries have incorporated the potential impact of policies related to environmental issues into the long-term [fiscal] projections”.

Indeed, as we sift through the mountain of budget papers in each year’s budget lock-up deep in the bowels of the treasury HQ, it’s generally what’s missing that is most revealing.

So first and foremost ACF’s “fantasy budget” would be restructured to explicitly include our nation’s natural and human assets.

Our budget would include a national balance sheet, with a full discussion of Australia’s natural assets, including forward projections. Balance sheets are central to decision-making in every business, ensuring assets are not run down merely to generate short-term revenues; why not our nation as a whole? This would create a way of embedding issues in the budget that are currently invisible, such as resource depletion and the running down of critical infrastructure such as public transport systems.

Interestingly, ABS already produces a national balance sheet, though it is buried in a data cube somewhere and nobody pays it any mind. Also, it’s incomplete. ACF’s fantasy budget would update it, ensure it includes all ecological assets and give it pride of place in Budget Paper No.1.

Conveniently, we now have a globally agreed statistical standard (equivalent to GDP) for doing this. The UN System of Environmental-Economic Accounting (SEEA), which Australia played a major role in developing, is shovel-ready, but the ABS needs an infusion of cash to make it happen.

The budget papers also include an “economic outlook” for Australia. This needs to be converted into a “national outlook” that takes in a broader set of issues that will affect our nation’s future. Non-market production (such as household work and caring work) and ecological production (such as water services, soil production and climate regulation) are just as important as production within the marketplace. ACF’s integrated map of the systems of production and distribution of goods and services — the “Whole Economy” (here) — shows GDP represents perhaps only a third of total productive activity in Australia. So a real national outlook, not just an economic outlook, would help frame the budget more completely.

Why is this important? Consider aged care. When people have more time to care for their aged relatives, it lessens the demand on government. But if people are driven to be more “productive” and so have less time to care for aged relatives, the demand for government or market-provided care options is correspondingly greater. These “non-market” activities are a crucial determinant of the likely future demand for government services.

Next, it’s critical we bring tax expenditures fully within the budget framework, fully integrated as expenditure line items on portfolio budget statements. Currently, about 15% of total Commonwealth expenditure is nearly invisible in the budget papers, because it comes in the form of tax breaks rather than direct financial handouts.

And finally in our list of structural budget reforms, all new budget measures should be assessed for their impact on the national balance sheet, on key measures of well-being and on other tiers of government. For instance, the last budget includes an increase in the already high-skilled migration program. What impact will that have on the state and local government agencies that have to provide services for the additional residents? Or on pressure to expand urban growth boundaries in response to greater population? Or on Australia’s total energy use and greenhouse emissions? Who knows.

Now let’s talk dollars. Richard Denniss points out that Australia is a low-taxing nation and our national revenue is on the decline. He also suggests billions of dollars of savings by getting rid of tax breaks that serve little purpose other than to allow wealthy people to engineer very low tax rates. We agree, and would highlight the following revenue-raising measures with an ecological dimension.

Eliminate accelerated depreciation. This is just closing a deal that was struck more than a decade ago with business as part of the 1999 Ralph Review of Business Tax, which business with the complicity of both sides of politics has since reneged on. Our analysis is that the massive current investment pipeline in LNG and CSG will result is foregone revenue of $3.26 billion over the forward estimates, heading towards $2 billion annually by 2018.

Phase out fuel tax credits for mining and transport sectors, a massive handout worth $2.9 billion annually. This policy means the big miners aren’t charged the fuel excise that you and I pay at the bowser. Not fair and difficult to justify!

Add this to our long list of other tax breaks that promote the use of fossil fuels (aviation fuel tax breaks, aircraft tariff exemption, 150% petroleum exploration deduction) and you’ve quickly got $4.2 billion in savings across the forward estimates.

An international financial transactions tax would increase financial stability, discourage high-frequency, short-term trading, encourage investors to take a longer-term approach to investment and provide a pool of funds to deliver international development goals to be discussed at next month’s Rio+20. US estimates predict such a tax could raise $350 billion per annum.The savings measure we’ll probably get least support for is doing away with is the concessional treatment of capital gains for housing, both principal residence and non-owner occupied investment properties.

This is a massive tax expenditure that encourages over-investment in residential tax shelters using negative gearing. It has a major distortionary impact on the very shape of our cities with speculative, tax-driven investment in housing being the first link in a chain of causation that leads to spiralling housing costs and consequent urban sprawl, with all its attendant environmental pressures. This concession costs upwards of $18 billion per year.

How would we spend funds we’ve generated through the above measures? Well, $20 billion buys you a whole lotta green economy. Priorities would include:

  • Equalising investment in public transport with road expenditure. (In this year’s budget, the Commonwealth spent $14 on roads for each $1 on rail.)
  • Protecting the ecological life support systems that sustain Australia and our economy, particularly through large-scale investments in the National Reserve System, river health and ecosystem restoration, delivering jobs such as those in a culture and conservation based economy in northern Australia.
  • Building a smart national energy system, including upping the ambition on clean renewable energy, integrated urban smart grids, and energy efficiency (including reinstating the green building tax breaks).

If a budget is a representation of a nation’s priorities, ACF’s priorities are to cut some of our less-effective spending and invest in Australia’s long-term welfare; environmental economic and social.

*Simon O’Connor is an economic adviser and Charles Berger the director of strategic ideas at the Australian Conservation Foundation.

**We’re engaging some of the smartest economic brains to design their fantasy budgets. But the floor is open to amateur treasurers everywhere  —  email us your thoughts and we’ll compile the best responses.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey