What does the nation's self-appointed fiscal guardian say when the Coalition presides over a massive budget blowout? Why, it finds excuses not available to Labor.
What's the difference between a federal budget that is "good in parts" but "has not fully grasped the opportunity to set a clear direction for the future", and "a sound, sensible and thoughtful budget which takes pragmatic steps"? Or even "a solid, responsible budget ... heading in the right direction"? If you're the Business Council of Australia, about $100 billion.
Not $100 billion better -- $100 billion worse.
The Business Council of Australia is our self-appointed guardian of fiscal rectitude, and it's unapologetically hardline. “Fiscal policy in Australia should be predicated on a strategy that delivers budget surpluses on average over the medium term,” the BCA said in its 2013 Action Plan for Enduring Prosperity
. That's surpluses
over the medium term, not balance. It urged that taxes be capped at 23.7% of GDP as an upper limit, with “a percentage surplus based on 'recharging' fiscal readiness around every 13 years such that fiscal policy is able to make a 3 per cent of GDP contribution to the economy should the need arise.” To give an idea of that order of magnitude, three per cent of GDP would be around $60 billion in 2020. Government spending would therefore need to be set at well below 23.7% of GDP to build up a war chest of tens of billions over 13 years.
In that Plan, it also recommended a national commission of audit – which the Abbott government promptly launched after the election, headed by former BCA head Tony Shepherd and supported by BCA staff. The audit, the BCA suggested, would “come to terms with the appropriate size of government” and “identify current activities that should not be performed by government".
Given the fiscal hair shirt the BCA wanted the nation to put on, how has it reacted to the Coalition’s ongoing failure to reduce spending, which currently stands at 25.7% of GDP, well above the level inherited from Labor, or rein in the deficit, let alone produce substantial surpluses? After all, the BCA did not look kindly on Labor’s budgets, even those predicting a return to surplus. When Labor announced -- prematurely, as it turned out -- a return to surplus in the May 2012 budget, accompanied by a projection of $16 billion worth of surpluses over the Forward Estimates, the BCA was underwhelmed. Wayne Swan had "not fully grasped the opportunity to set a clear direction for the future," the BCA said
. The budget was "good in parts, but the hard yards lie ahead".
Of course, the budget never got back to surplus -- the $19 billion deficit that year was the closest we’ve come since 2007-08 ended with a $20b surplus. The following year, after abandoning the pursuit of surplus, Wayne Swan unveiled a net deficit across forward estimates of $21.5 billion, and the BCA was furious. Labor "gives us no reason to believe the government’s projected return to surplus in 2015–16 is any more deliverable than last year’s promise," it said in a budget statemen
t. The budget "hasn’t addressed the lack of confidence in the economy." And looking forward to the election that year, the BCA warned "whichever government is in place after September is left with no excuses".
Except, the BCA would be happy to find excuses once the Coalition was in government. Despite trying to pile spending into 2013-14 financial year and blaming Labor in its first Mid Year Economic Forecast the previous December, the Abbott government's first budget was a marked deterioration compared to the previous year's and the 2013 Pre-Election Fiscal and Economic Outlook prepared independently by Treasury and Finance: then-Treasurer Joe Hockey unveiled $43.7 billion in deficits across the Forward Estimates.
This, you’d assume, would draw heavy fire from the “no excuses” crowd at the BCA. But no -- in fact that budget was
“a solid start to putting the fiscal strategy back on track … the budget has had to grapple with difficult choices, it should give business and the community greater confidence the government deserves credit for taking important steps".
From "no excuses" to "difficult choices" in just one year -- and a doubling of the deficit.
The following year, when spending had risen and tax revenues had been written down again, Joe Hockey revealed another deterioration -- now we were looking at over $80 billion in deficits over four years. Still, the BCA was all nods and understanding
. It was “a sound, sensible and thoughtful budget which takes pragmatic steps to get Australia’s fiscal strategy deserves to be passed by the Senate … The budget is without doubt a shot in the arm to small business, and creates a better environment for business confidence".
A few months later, their own party ousted Abbott and Hockey. The new treasurer complained publicly about his predecessor’s high spending, which had reached 26.2% of GDP.
With even the Coalition admitting it had lost its fiscal discipline, had the BCA learnt anything? When Scott Morrison unveiled yet another deterioration in May this year -- $84 billion in deficits, the return to surplus pushed back yet another year -- the BCA was quick to applaud. It was "a solid, responsible budget … tonight’s budget is heading in the right direction. A budget which is fiscally responsible as well as supporting growth".
What was a "failure to grasp the opportunity" when Labor predicted $16 billion worth of surpluses had become "fiscally responsible" when the Coalition was predicting $84 billion in deficits.
The BCA said nothing about the surge in spending under the Coalition, or about the dumping of taxes such as the carbon price or the mining tax or Labor's superannuation tax changes which significantly worsened the deficit. Indeed, BCA head Jennifer Westacott attacked Labor's carbon price as "unconscionably high" and backed
the Abbott government repealing it despite its massive revenue impact. When the new government dumped superannuation tax changes that would have yielded billions in extra revenue from curbing overly generous super tax arrangements favouring high income earners, the BCA actually cheered it
as "[boosting] business certainty and confidence by clearing the decks".
One could argue the BCA doesn't support any
tax rises -- except that's not right: it still wants an increase in the GST. The hair shirt is only for Labor and low and middle income earners -- companies, high income earners and the Coalition are exempt from the BCA's fiscal lash.
The inconsistency even continues in key areas like foreign investment, where you would expect, given the strong multinational composition of the BCA's membership, strident opposition to the Coalition's xenophobia and regular rejections of foreign investment applications. After all, they gave Wayne Swan a whack in 2011
for not being "clear and open" about his rejection of a merger of the Australian Stock Exchange and the Singapore Stock Exchange. So presumably Scott Morrison's recent rejection of not merely a state-owned Chinese company but a private Hong Kong company, that already has extensive investments in Australia, from purchasing Ausgrid drew the BCA's ire? Especially given Morrison's refusal to provide any rationale for the decision beyond "national security"?
Alas, no -- the BCA "respected"
that decision. As for that need to be "clear and open", well: "while we are obviously not privy to the details, we would expect that the FIRB would make this assessment based on firm evidence from relevant agencies". So that's OK then.
No wonder the Liberal Party itself is now dismissive of the BCA: no matter what they do in government, no matter how much they ignore the BCA's most sacred tenets on the budget and foreign investment, they know the Council will always bend over backwards to support them.