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It's MYEFO, Not YourEFO

By Andrew Leigh - posted Wednesday, 18 December 2013

As a very junior lawyer, I once worked on a case representing a restaurant owner, who had sold his business. The new owners complained that they could not make as much money as he had done. When we looked into it, the reasons quickly became apparent. They had taken on their relatives as staff, fired the chef, and allowed grime to accumulate in the kitchen. They claimed that our client had misrepresented the true state of the restaurant when it was sold. But as the judge found, it was the new buyer's shabby management that led to the losses.

Today, Joe Hockey is trying a similar trick. It's been 101 days since the election, but rather than acting as the Treasurer of Australia, he's frozen in Opposition mode, looking for someone to blame.

Mr Hockey today is going to attempt to argue that he has discovered 'spiders in the cupboards', and pretend that he is showing the state of the books at the time he became Treasurer. Unfortunately for Mr Hockey, that particular trick has been made impossible, thanks to the fiscal equivalent of Mortein: the Charter of Budget Honesty.


Created by Peter Costello after the 1996 election, the Charter does something very simple: it requires the Secretaries of Treasury and Finance to prepare a Pre-Election Fiscal and Economic Outlook (PEFO). That document sets out the nation's public finances at the time of the election. It ensures, as Mr Costello put it at the time 'that the Australian people know the situation before an election begins and so that elections can be conducted on the basis of the facts and not on the basis of deceit, as governments in the past have sought to do.'

The PEFO for the 2013 election showed an economy with solid growth, unemployment that was low by historical standards, and gross debt projected to peak at $370 billion in 2016-17. That is the spider-free economy Joe Hockey took on.

As Shadow Treasurer Chris Bowen has pointed out, Labor's six years in office saw our economy grow from the 15th largest in the world to the 12th largest. In terms of income per person, we rose from 17th to 8th. This success has been recognised by respected international institutions such as the IMF.

Through the deepest global downturn since the Great Depression, our economy continued to create jobs. And for someone with a $300,000 mortgage, Labor's lower interest rates meant a saving of over $100 a week.

In our budgets, we made a series of tough decisions. Indeed, Labor's final budget achieved a reduction in nominal spending – the first time in Australian history this had ever occurred. Cracking down on multinational profit-shifting wasn't easy policy, but closing that loophole saved taxpayers billions. We were on track to repay the debt that had been incurred in order to save over 200,000 jobs during the economic crisis.

Alas, Mr Hockey's early days in the job suggest a Treasurer who struggles to win the key economic arguments. He is the first Treasurer to knock back a foreign investment bid by a US company, potentially imperilling growth and jobs in rural Australia. His decision to give $9 billion to the Reserve Bank is bewildering, given the lack of evidence that they ever asked for such a princely sum. A tax cut to mining billionaires and removing the carbon price will cost billions in lost revenue. A parental leave scheme that gives $75,000 per baby to the highest-earners will further blow out the budget.


And let's face it, if you really believed the nation was facing a 'budget emergency', and that the Greens were the most extreme party in Australia, would you strike a deal with the Greens to remove the debt cap entirely?

Today, Mr Hockey should take responsibility for his own decisions, and admit that his budget update reflects changes made on his watch. Rather than trying to shove PEFO down the memory hole, he should outline his positive plans to maintain labour productivity growth, running at a respectable 2 percent under Labor. Having lost a game of high-stakes poker with Holden, he needs to outline his plans for the South Australian economy.

It's hard to see how productivity can continue to grow if school funding is cut, if fibre-to-the-home NBN is cancelled, and if pork-barrelling is brought back into the infrastructure decision-making process. These are big questions for the Treasurer, and I hope he has some serious answers.

It's your economy now, Joe. Time to step up to the mark.

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This article was originally published in the Sydney Morning Herald on December 17, 2013


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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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