Monday, September 19, 2011

New budget office must clarify, not confuse

Economists believe people should be judged by their ''revealed preference'' - by what they do, not what they say. If so, Wayne Swan is supremely confident Labor will romp home at the next election, whereas Joe Hockey is not at all sure the Liberals will win this time round.

You can deduce this from the different positions the two men take on the legislation to establish a parliamentary budget office. Swan has presented a bill that offers tightly defined benefits to the opposition of the day, whereas Hockey wants to give oppositions a much wider licence to argue the toss with the government. Both seem to be ''taking no thought for the morrow''.

The idea of a parliamentary budget office - roughly modelled on the independent US Congressional Budget Office - has potential to greatly improve the quality of the debate about how much election promises would cost and how they'd be paid for, imposing greater discipline on the parties.

Peter Costello's charter of budget honesty was intended to bring this about by giving both sides the ability to have their policies costed by Treasury and the Department of Finance during the election campaign. But Costello biased the rules against the opposition of the day, meaning they have proved unworkable. The present arrangements require the heads of Treasury and Finance to publish in their own name a pre-election economic and fiscal outlook - giving revised forecasts for the economy and the budget balance - soon after each election is called. No problem there.

It also allows both sides to submit their announced policies to Treasury and Finance for costing. These costing are published by the two departments as soon as they are done. This is fine for governments, which are able to privately bombard the departments with requests to cost a host of possible policies before the election is called. In a process of iteration, treasurers are able to refine their proposals in the light of advice about what things will cost and alternative ways of skinning the cat.

Then, once the election's called, they announce their policies and bowl them up to be ticked by the same people who costed them in the first place.

But oppositions get no pre-election access to the econocrats to try out different proposals. They have to painstakingly gather facts about the cost of this and that, or spend a fortune paying Canberra consultants to cost their policies, knowing those consultants can't necessarily do it the way Treasury does it - especially so after Access Economics retired hurt from the game, having been monstered once too often by the lovely Costello.

The problem is that if Treasury and Finance judge the opposition's costing to be wrong - as there's a high chance they are - this is announced during the campaign and the treasurer carries on about the incompetence and irresponsibility of his opponents.

Swan's bill follows the unanimously agreed recommendations of a multi-party committee. The office would be established as a department of the Parliament, independent of the government. It would give all non-government members the ability to have policy proposals costed in a private, iterative process until the start of the campaign.

The costings for policies submitted during the campaign would be automatically made public. This would put the opposition on the same basis as the government, provided the office had adequate access to the unique information base and costing models used by Treasury and Finance.

It would give the Greens and independents access to accurate costing for the first time, a big step forward. The office would be required to use the same economic forecasts, budget parameters and costing conventions as Treasury and Finance, which would put all costings on a comparable basis and mean the costings used by an opposition during a campaign were essentially the same as those Treasury would incorporate into the budget should the opposition become government.

The office would not have the power do its own forecasts, nor undertake modelling of the economic (as opposed to budgetary) consequences of possible policy reforms.

But Hockey has proposed amendments to the government's bill to give the office a wider range of powers. It would have the same powers as the Auditor-General to demand information of government departments. It would be able to use different forecasts and costing conventions to those in the budget.

Non-government members would be able to have confidential dealings with the office even during election campaigns, making their own decisions about whether and when to make costings public. The Gillard government's funding allocation for the office - about $6 million a year for four years - would be indexed to Treasury's funding.

These Liberal counter-proposals demonstrate a degree of mistrust of governments - and governments' ability to interfere with Treasury forecasts and budget estimates - that seems common among oppositions but is unwarranted.

Not since the Hawke-Keating government have governments interfered in Treasury's economic forecasts and budget figurings. Treasury's forecasts are often wrong and even its costings can prove astray, but there's no reason to believe any other outfit could do better. I think it fair enough to require oppositions to get their policies decided and costed before the campaign starts, just as the caretaker convention requires governments to.

If the taxpayer has to pay for an additional costing body it's vitally important the work of this body helps to clarify the debate not make it even more confusing than it already is.

It's infinitely preferable that all parties' costings be prepared on the same basis, rather than allowing oppositions to chose different economic forecasts or different budget parameters and costing conventions.

If we can avoid that tower of Babel the parliamentary budget office will be a big improvement.