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How the figures are fiddled to hide the true state of the budget

March 25, 2004

Where's all the money gone? The Government should tell us, before the election.

'When I use a word," Humpty Dumpty said in a rather scornful tone in Lewis Carroll's Through the Looking-Glass, "it means just what I choose it to mean - neither more or less."

The Howard Government knows what he meant.

Before the end of the present financial year, the Government will draw down $4.6 billion from the Consolidated Revenue Fund and hand the money over to the Telstra and Australia Post superannuation funds, which will use the money to buy shares and other assets.

This transaction miraculously does not appear on the budget bottom line. If it was to appear it would wipe out the projected surplus for 2003-04 reported by the Treasurer in 2003 and, incidentally, the Government's credibility and its much-touted election war chest.

This is just one episode in a series of financial fiddles designed to disguise the size of the deficit and the pillaging of public assets.

The following is a non-exhaustive list of budget fiddles designed to avoid the rendering of proper accounts to Parliament and the public:

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  • The $32 billion GST is not included in Government taxation revenue because to do so would clearly show the Howard Government is the highest taxing government since World War II.

  • Telstra shares were overvalued by $7 billion in last year's budget to disguise the dramatic fall in Commonwealth net worth, which has declined by $4 billion since 1996 because of a $72 billion sell-off of assets at bargain prices.

  • Realised foreign exchange losses of billions of dollars have ceased to be an above-the-line item since 2000. Under pressure in the Senate, the Treasury admitted to $800 million realised loses in 2001-02 - which is more than double that sustained by the NAB.

  • The buy-back of government debt before maturity has meant that a premium of up to 25 per cent above the face value of the debt has been paid. A 1999 Auditor-General's report showed that in two years these losses amounted to $935 million, but they may not be reported as a loss in the budget for up to 10 years. All we know is what is provided in the forward estimates, which show that even though debt will be non-existent in 2006-07, we will still be paying $3.5 billion in interest expenses.

  • The constitution provides that all Commonwealth money should be paid in and out of the Consolidated Revenue Fund. Until 1999 the fund was audited. Then the fund disappeared from public reporting, until it was mentioned briefly in 2003.

    In the lead-up to the October 2001 election, the Treasurer reported an underlying cash balance of $5.6 billion and a headline (including asset sales) budget surplus of $11.3 billion.

    But in 2003, the Department of Finance advised that the cash flow of the core bank account of the Commonwealth reported for 2000-01 payments of $253.8 billion and receipts of $250.9 billion and a deficit of $2.9 billion.

    An explanation for the $14.2 billion turnaround is still awaited. Like Humpty Dumpty, it is clear the Howard Government believes that words such as "cash" mean whatever it wants them to mean, no more and no less.

    Everyone else in society understands what cash is. It is what goes in and out of the bank account. Even in the most arcane reaches of the accountancy profession, there is no argument about cash. Cash is king - unless you are the Federal Government, because then you can hide behind your taxing power to disguise your waste.

    Taxes and charges now total 27 per cent of GDP - 2.9 per cent of GDP or $22 billion more than in the last year of the Keating government, and 4 per cent of GDP or $32 billion more than in the last year of the Whitlam government.

    Thirty years ago, a higher proportion of children went to government schools, there was free tertiary education and there was massive investment in urban infrastructure without the need of tolls.

    Thirty years on, the Howard Government has sold off the accumulated infrastructure assets built up since Federation. These assets cannot be used to fund future generations, so now the Government is forced to rely on higher taxes and charges.

    Despite the largest asset price inflation in a century, the Government has, in effect, swapped high-yielding assets for low-yielding deposits with the Reserve Bank.

    A window into the private sector returns (and the income forgone to the Commonwealth) can be gauged from the Commonwealth Superannuation Scheme website, which describes how it turned a $5 million investment in airports into a 27 per cent a year return, while the money invested in term deports earned 4.7 per cent.

    Who is looking after the public interest? The question was asked by the Auditor-General in 2001 in the audit of the billion-dollar sale of Commonwealth offices. The answer, given by the Finance Department, was that the department was not charged with the role of protecting the overall "interests of the Commonwealth".

    There should be a full accounting to the Australian public of the true state of the Commonwealth budget, especially given the massive asset-sale programs. What has happened to all the money?

    Such an accounting is unlikely to be performed by the Howard Government. After all, it doesn't want to be seen to be selling the future to maintain the present.

    Kenneth Davidson is a staff columnist.