By Allen Myers
It's an article of faith in the new federal Coalition government that it inherited a "black hole" budget deficit of $8 billion from its Labor predecessor. This alleged black hole immediately became the justification for sweeping cutbacks.
The metaphor for the supposed deficit has an appropriateness which John Howard's speech writers probably weren't thinking of when they settled on the phrase. Black holes are invisible, and the $8 billion deficit, if not completely invisible, has a certain now-you-see-it-now-you-don't quality.
To anyone who is sceptical about the 1996-97 underlying deficit black hole, the government responds that the figure has been calculated by the Treasury. This is true, but it is a further reason for scepticism, not confidence. The very same Treasury, prior to the federal elections, calculated the budget bottom line, not as a deficit, but as a surplus of around $4 billion.
It is important to remember that all these figures are only predictions, not realities. Projected government income and expenditures will vary, among other things, according to the assumptions made about what will be happening in the economy.
This is what shadow treasurer Gareth Evans was referring to in an April 25 speech when he said, "Overwhelmingly, the predicted blow-out in the underlying deficit — 90% of it, in fact — is due simply to a revision of official estimates of growth, jobs growth and inflation".
In short, what we have here is a neat illustration of how to lie with statistics. The former Labor government told the Treasury to calculate a surplus, which suited Labor's political purposes at the time. The incoming Coalition told the Treasury to calculate a whopping deficit, which suits its political goal of savaging the public service and social welfare.
The Treasury is more or less obligated by law, constitution and custom to do as the government tells it. But nobody is obligated to believe the Treasury.
Of course, there are political or credibility limits on fudging the figures: at some point, there will be a reality to which the prediction is compared.
It is also true that a prediction about the budget may need to be changed because better — or at least newer — information has been received about the likely state of the economy. This is partly what is involved in the swing from a $4 billion surplus to an $8 billion deficit: Treasury economists now think that earlier forecasts for the 1996-97 economy were too optimistic.
Even after allowing for such factors, however, there is more than a little evidence of the government cooking the books on the famous black hole.
In the April 30 Financial Review, Brian Toohey pointed to a number of inconsistencies in the Treasury's March 12 statement, which accompanied the $8 billion deficit claim. One was an apparently unexplained drop in jobs growth. While Treasury forecast economic growth as being a constant 3.25% in the current year, 1996-97 and 1997-98, it predicted jobs growth to be 3% this year, only 1.5% next year and 2% in 1997-98.
These figures would imply rising unemployment and hence smaller government revenue and increased government expenditures. A good part of the projected deficit would vanish if jobs growth were projected as remaining proportional to economic growth.
As for any remaining real deficit, it could be eliminated very quickly in either or both of two ways.
One would be to eliminate handouts to business. Even the Financial Review (April 26) admits that there is more than a little room for this: "Business enjoys nearly $7 billion a year in assistance from the Commonwealth, much of it directed at industry giants. Why, for example, should BHP enjoy nearly $90 million in diesel fuel relief?"
The other way to eliminate the deficit is to tax the rich. Over 13 years, the Labor government systematically reduced the taxes paid by corporations and the wealthy. But the Howard government has no intention of reversing that: the idea that the rich should pay their share seems to have vanished into a black hole.