Peter Martin has set out the types of ‘error’ Treasury identified in the Coalition policy costings.
The Charter of Budget Honesty sets out guidelines for election costings, in order to make sure they are done on the same basis. One forbids the counting of proceeds from expected ”second-round effects” such as a saving on the dole from a job creation program. The Coalition counted such an effect because it says the National Centre for Economic Modelling told it its program would take 51,000 people off the dole.
That and a similar ‘error’ amounts to some $3.5 billion. But I’m not sure the Charter of Budget Honesty forbids second round effects. Here are the criteria.
The following are standard conventions for the preparation of fiscal costings.
• Costings will focus on the effect of a policy on the Commonwealth’s budget balance. They will be produced in a manner consistent with normal budget costing methodologies.
• Economic data and forecasts used in the preparation of costings will be consistent with the pre-election economic and fiscal outlook report.
• Costings will be on a current price basis.
• Costs will be on a June financial year basis and costings will be provided for the current financial year and the following three financial years.
• Full-year, part-year and one-off effects (the steady state full-year cost will be made clear) will be distinguished.
• Costings are generally to be best point estimates; however in some cases the Secretaries may consider it appropriate to report ranges rather than point estimates.
• Costings will be prepared in accrual and cash terms. For each policy, the impact on the fiscal balance and underlying cash balance (and headline cash basis as appropriate) will be reported.
• Where relevant, the revenue and expense components of a policy costing will be identified separately (it is expected that most costings will typically involve revenue elements only or expenses elements only).
• The costings will take into account the effects on departmental expenses.
• Costings will not generally account for the impact on Public Debt Interest (PDI) payments, except in those circumstances outlined in Part Two of these guidelines.
• Assumptions used in costings will be based on the best professional judgement of the Secretaries.
Nowhere is there a prohibition on second round effects. In fact, we see this statement that seems to suggest that second round effects can be included if the Secretaries want to do so.
Assumptions regarding behavioural responses of the people affected by policies will be taken into account where it is normal practice to do so. In some instances, behavioural effects will be a significant element of the costing. Where there are significant behavioural effects, the assumptions used in the costing will be clearly identified in the publicly released costing report. In some cases, behavioural responses will be uncertain, ambiguous, difficult to quantify or of small magnitude. In these situations behavioural effects will not be included and this will also be made clear in the costing report. The inclusion of behavioural effects in costings will reflect the best professional judgement of the Secretaries and will be decided on a case by case basis. Where appropriate, sensitivity analysis will be undertaken to demonstrate the impact of different assumptions regarding behavioural responses.
The last budget actually included second round effects in the analysis of proposed corporate tax cuts. We covered it here at the time.
The Government’s tax plan will promote growth across the entire economy. Independent modelling of the plan indicates that it will deliver a reform dividend of a 0.7 per cent increase in GDP long run, which can, over time, be expected to flow through into taxation revenue.The reduction in the company tax rate is expected to increase GDP by 0.4 per cent in the long run with a further 0.3 per cent increase from the resource tax reforms.
This growth will also include a $94 million increase in GST collections which will flow through to payments to the States and Territories.
So this raises the question: why is the government allowed to use the second round effects of a proposed policy in the actual Budget Papers but the opposition not allowed to rely on second round effects in election promises?
So this raises the question: why is the government allowed to use the second round effects of a proposed policy in the actual Budget Papers but the opposition not allowed to rely on second round effects in election promises?
We might need UN inspectors for our elections soon.
Infidel Tiger
3 Sep 10 at 7:07 pm
Is a second round effect a different way of saying an indirect effect ? If that is the case why can some PDI impacts be included ?
Is the criterion whether it is fiscal or economic ?
Thanks for the link to the CBH
Keith
3 Sep 10 at 7:48 pm
So the government can count revenue in the budget that the opposition is ‘not allowed’ to count in an election campaign?
Who sets these stupid rules?
And did they apply the rules to ALP policy too?
daddy dave
3 Sep 10 at 8:10 pm
There ought to be a Royal Commission into Treasury’s behaviour in this election campaign. They illegally leaked material and have self-evidently doctored Coalition documents to swing an election.
This whole thing is simply absurd. The Treasury IS ‘the government’ so of course government numbers are always – hey presto! – JUST RIGHT! And the Coalition numbers invariably have a “black hole.” Well, of course they do. Treasury was tasked by the government to ‘find’ one.
C.L.
3 Sep 10 at 8:37 pm
When the RSPT was unveiled in this year’s budget, did Treasury not include second round effects?
Skuter
3 Sep 10 at 10:46 pm
Nowhere is there a prohibition on second round effects. In fact, we see this statement that seems to suggest that second round effects can be included if the Secretaries want to do so.
It’s a good thing Henry is working for the Treasury where any rules apply. If he was CFO at a corporation he be Ken “Layed” by now.
So no answer why there is one rule for the opposition and one for the government? What a total arsehole.
JC
3 Sep 10 at 11:08 pm
So in reporting an alleged ‘error’ Martin actually commits a error himself; an error which in fact demonstrates that the alleged ‘error’ was no error at all. That is inexcusable, to borrow his word.
And if Henry’s hypocrisy is in fact true we have one more reason to show him the door. That man has dragged Treasury into the partisan gutter; Ma Henry must be very proud.
dover_beach
4 Sep 10 at 9:11 am
So could Abbott use this to his advantage? He could claim that treasury used a different set of rules when they costed his proposals as when they costed government proposals.
(specifically, no second round effects were included in his revenue base)
daddy dave
4 Sep 10 at 9:45 am
I do not think you are correct.
If you examine carefully where Treasury writes about their forecasts and then projections in Statements 2 and 3 they do not mention it all all.
In Statement 4 they say ‘In the KPMG Econtech modelling, the potential long?run gain to total output from reforms to resource taxation and reducing the company income tax rate to 28 per cent is projected to be around 0.7 per cent. Real household consumption is projected to be 0.4 per cent higher. The modelling also estimates that real wages would be around 1.1 per cent higher than otherwise in the long run.’
I believe potential is the operative word.
In other words they have not used second round effects at all
Peter Pan
4 Sep 10 at 10:21 am