Rudd's budget trick: pie in the sky when you die

This is from normally Left-leaning economist Ross Gittins

The annual debate about the budget gets ever more unreal. This year it reached the height of absurdity. Budgets used to be about what the government plans to do in the coming financial year. Now they're about what supposedly will happen any time over the next four years.

How unreal can you get? Who on earth knows what will happen over the next four years? No one. Certainly not Treasury (nor any of the smarties who think they know better than it). This time last year Treasury's best guess was that unemployment would peak at 8.5 per cent next year; now we know it peaked at 5.8 per cent in the middle of last year.

This time last year we were told revenue collections over five years would be down $210 billion on what the "forward estimates" had told us the year before. Now we're told they'll be down $110 billion - but why would you set much store by that guess? We know from repeated experience that Treasury is quite bad at telling us in early May what the budget balance will be at the end of the following month. And yet we take seriously what it says the balance will be in three or four years' time.

This year there's been huge emphasis - encouraged by the government's rhetoric and amplified by the media (including yours truly) - on one figure: the projected budget balance in three years' time, a surplus of $1 billion. Hallelujah! Home and hosed. All over bar the shouting.

How absurd can you get? Treasury isn't even prepared to dignify this figure with the status of a "forecast"? It's the product of a completely mechanical, punch-in-predetermined-numbers "projection". Here's another absurdity: the public debate about the budget treats all its figures as if they were accomplished facts. No ifs or buts or maybes. And do the purse-string ministers - who know better than anyone how unreliable these figures are - make it their responsibility to warn us not to take them too literally? Not a bit of it.

Here's Lindsay Tanner: "The result is that we are back in surplus three years ahead of schedule in three years' time and the level of debt Australia has will be half of what was initially projected" (my emphasis).

Last year's projection was rubbish, but this year's is fact. Of all the (inescapably) rubbery figures in the budget, the one we've fixated on is the rubberiest: the $1 billion cash surplus in 2012-13. The one thing you can bet on is that the budget balance that year won't be a surplus of $1 billion.

One billion! One billion! Do you realise how infinitely small that figure is in what's projected to be a $378-billion budget and a $1.6-trillion economy?

What if it turns out to be an equally infinitesimal $2 billion overestimate? Oh my lord, still in deficit! By any sensible metric, any outcome within $5 billion either side of zero represents a balanced budget. Why allow commonsense to spoil a good story?

This relatively recent shift from focusing on the budget year to taking a blurry look at the next four years has made it easier for governments to manipulate our perceptions of the budget. And boy, weren't the pollies working hard at it this year.

The budget papers boast that all the new budget measures since November "have been delivered within the fiscal strategy and are fully offset over the forward estimates by a reprioritisation of other policies".

Reprioritisation? That's the latest econocrats' weasel word. What does it mean, exactly? We're not told. I think we're meant to guess it's a euphemism for spending cuts (think canning the home insulation scheme and breaking the election promise to build 260 childcare centres).

I suspect it also covers changing the timing of spending, pushing it off into the future beyond the four-year forward estimates. Consider defence spending. About 10 days before last year's budget Kevin Rudd made a grand announcement that the previous government's commitment to increasing real defence spending by 3 per cent a year would be continued.

But 10 days later the budget pushed a lot of that spending (mainly the purchase of major equipment) off into the never-never. This year's budget papers say real defence spending is expected to fall by 6.5 per cent in 2011-12 and by a further 3.8 per cent in 2012-13 (the year we supposedly return to surplus).

Then, however, it grows by 5.3 per cent the year after (and, if we only knew, no doubt skyrockets in the years beyond the forward estimates). Rudd's grand promise just gets rolled further and further into the future.

Though it's true Rudd's new spending programs are planned to be fully offset by "reprioritisation" over the forward estimates, it won't become true until the last year of the forward estimates, 2013-14, when "saves" are intended to exceed "spends" by $5.9 billion. Until then, spends exceed saves - and worsen the budget balance - by $1.9 billion this financial year, $2.4 billion in the new financial year and $2 billion in 2012-13. See what I mean about exploiting the four-year fuzzy focus?

Then we have the discovery by Joe Hockey's people that some helpful fiscal fairies improved the budget's profile of ever-diminishing deficits by bringing $1.8 billion in spending forward to this financial year, thus making the base-year higher and the subsequent improvement greater.

The other trick is that so many of the vote-buying goodies - the cut in company tax, the small-business instant write-off, the superannuation concessions, the new standard deduction and the bank interest concession - don't take effect for two or three years. This budget's "fiscal conservatism" rests heavily on the promise of pie in the sky sometime before you die.

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Leftist NSW government trying to destroy non-government medical facility

The head of the state's biggest injury rehabilitation centre has accused the Health Department of trying to destroy it by slashing funding and playing political games at the cost of patient welfare.

Funding for the Royal Rehabilitation Centre in Ryde, which treats people with severe burns and brain and spinal injuries, had been cut by more than a quarter in one year, its chief executive, Stephen Lowndes said yesterday. This would cause "serious liquidation issues" and put a planned 60-bed redevelopment in jeopardy, he said.

A $50 million upgrade of the centre, which is a not-for-profit charity, had been in the pipeline for five years. It was to include a new accommodation block for 32 patients too badly injured to live in the community, a childcare centre for children with special needs, wetlands and a community centre, Mr Lowndes said.

It would also have a specialist 20-bed brain injury centre, the first of its kind in Australia.

But the plan is under threat because funding cuts coincided with Ryde Council's delaying its decision to grant permission for a developer to buy 12 hectares of the site, despite approval already having been granted by two former planning ministers, Frank Sartor and Kristina Keneally.

Frasers Property Australia had agreed to pay $82 million for the land and wanted to start work constructing 790 dwellings within months but the delay was leading to cash flow problems, Mr Lowndes said.

"We've already been given approval so it seems there are political reasons why the council would try and hold this up," he said. "If we don't get that money by August, we're in a very tenuous position. We're under real duress and we cannot go ahead with the redevelopment."

In October the state government announced it was hiving off 30 of the 60 proposed beds, funded solely by the Royal Rehabilitation Centre, and moving them to a new facility at Ryde Hospital, after it made more than $35 million from the sale of the former Graythwaite convalescent home.

The sale was expected to raise only about $22 million but a Supreme Court ruling insisted the entire $35 million be spent on rehabilitation services at Ryde Hospital. "The problem is that it is not economically viable to run less than 60 beds, so it leaves us in a difficult position," Mr Lowndes said. "We're not against developing Ryde Hospital but it should not be done at our expense or the expense of our very vulnerable patients."

In a letter to Ms Keneally last month, Mr Lowndes said it was "unfathomable" that NSW Health would "seek to destroy those specialist agencies such as Royal Rehab".

"We cannot continue to permit [NSW Health] to unilaterally reduce our recurrent funding to levels below the reasonable cost of service delivery or to make unilateral decisions to terminate our services," he wrote. 'Our existence is threatened by the very department that we should be partnering with to deliver first-class healthcare to the citizens of NSW … it is a perfect example of the very poor health administration that the federal government has expressed its resolve to address."

He had asked for an urgent meeting with Ms Keneally in order to secure a stay of execution on the decision to shift 30 beds, a guarantee of "reasonable funding" and long-term security.

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"Stimulus" corruption never stops

No money for charity hospital but PILES of money for unusable school buildings

BARELY bigger than a cubby house, canteens built under the federal government's schools stimulus scheme are costing taxpayers $25,000 a square metre. In NSW, 19 of the school tuckshops measuring 3m x 8m will cost between $550,000 and $600,000 each.

Orange Grove Public School, in Sydney's inner west, was knocked back on its request for a school hall, but given $550,000 to build a brick canteen too small to fit a stove or even a pie-warmer.

The materials for the canteen are estimated to have cost $29,680, based on an analysis of the NSW Education Department's materials list, and prices from the building industry costs guide Rawlinsons.

A fitout for a commercial cafe would cost $126,000, according to the Rawlinsons guide. Yet the Sydney school has been charged $308,000 for the canteen superstructure, $81,853 for design documentation, field data and site management - the architectural and engineering fees - and $60,956 for preliminaries, which includes scaffolding, security fencing, portaloos and protection equipment for building workers.

The secretary of the school's Parents & Citizens Association, Louise Appel, said yesterday the canteen was the size of her kitchen at home, "and I don't have a very big kitchen".

"It's crazy, really," Ms Appel said. "It's like a cubby house. We have no room for anything like we had hoped for, like a stove. "We were given two hotplates to sit on top of the bench. "We've got an old pie oven and are still trying to work out where to put it on the bench because there isn't any room."

Ms Appel said the school already had a tiny tuckshop and had asked that a larger one be incorporated into a new hall, as the 188 students had to walk to the nearby Leichhardt Municipal Hall or use neighbouring schools' facilities.

But NSW Education told the school its federal grant would not cover the cost of building a hall, so it was given the tuckshop instead.

"We understand economic stimulus, but this is not what this is," Ms Appel said. "They're doing this with our money, with taxpayers' money."

The project manager, Abigroup, is eligible for $5421 in project management costs, as well as a $15,320 incentive fee for building on time and within budget.

The builder, Redwood Projects, reveals on its website that it had fitted out a 150sq m commercial kitchen in the northwest of Sydney for just $150,000 - or $1000 per sq m.

Craig Mayne, a parent from Prime Minister Kevin Rudd's Brisbane electorate who has waged a campaign against Building the Education Revolution blow-outs, yesterday said the 24 sq m canteens should cost only $31,500, based on Rawlinsons' estimates figures.

Yet in outback NSW, more schools are receiving $600,000 canteens through the Rudd government's $16.2bn BER scheme. A school in the Aboriginal community of Toomelah, near the Queensland border, has had to cough up about $20,000 to finish off its $650,000 tuckshop with airconditioning, a security door, shelving and concrete.

Its 24 sq m "superstructure" is priced at $184,825, with another $114,237 for "preliminaries" and $92,922 for "design documentation, field data and site management".

Principal Paul Sortwell confirmed that extra funds had been used "to enhance the facility for our own personal use" for the school's 60 students. "That's money we've happily spent to modify it to our needs,"Mr Sortwell said.

Yanco Public School, in the Murrumbidgee Irrigation Area, also has a tiny tuckshop costing $600,000, with $166,867 for design documentation, field data and site management, $11,925 for site services and $42,704 for preliminaries.

Tottenham Central School, west of Dubbo, cannot fit the fridges from its old demountable canteen into the new building that is half the size.

P&C president Rick Bennett said the local council was building a stainless steel canteen and office six times the size of the school's new tuckshop - with toilets - for $415,000 just 500m from the school.

"I'm absolutely bloody gutted that there's been $600,000 of taxpayer money on this," he said yesterday. "It should cost $80,000."

Mr Bennett, who will make a 1000km round trip to Sydney at his own expense to address the Senate inquiry into BER tomorrow, said the school feared it would lose its old demountable tuckshop. "I know in our community you could put up two four-bedroom houses (with $600,000) yet we've got a canteen that's not big enough to put in the fridge or freezer."

Mr Bennett said that when he complained to a meeting of NSW education bureaucrats and building managers that the school's meat slicer would not fit into the new tuckshop, he was advised to buy pre-sliced meat.

The project manager, Laing O'Rourke, will be paid a $4675 "incentive fee" and $18,001 in "project management costs".

The NSW Education Department's BER website reveals the canteen "superstructure" will cost $161,042, with $116,000 for site services, $114,162 for design documentation, field data and site management, and $80,000 for "preliminaries".

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WA Libs launch anti-tax campaign

THE West Australian Liberal Party will launch a $50,000 advertising campaign tomorrow in a bid to turn opposition to the Federal Government's mining "super tax" into votes at the next election.

The proposed 40 per cent resources super profits tax is deeply unpopular in resources-rich WA, which has Australia's only Liberal State Government and an 11-seat margin over Labor at the federal level.

"This new tax will be a disaster for Western Australia - but it can be stopped," WA Liberal Party director Ben Morton said in an appeal to supporters over the weekend. "The only way to stop this new tax is to change the government."

The Liberal campaign, which claims the new tax would threaten up to 500,000 Australian jobs, will include radio broadcasts and mail drops into electorates where Labor is believed to be vulnerable.

The Liberals have said they are quietly hopeful of picking up the WA federal seat of Hasluck, which they lost at the 2007 election, and which is held by Labor's Sharryn Jackson by just 1.8 per cent.

Labor also holds the seats of Perth, Fremantle and Brand, after losing Swan and Cowan at the last federal election despite an overall swing towards the party in WA.

Mr Morton said the Liberal campaign would be expanded if it received financial support. "Stage two of the campaign will depend on the financial support we receive to fight this new tax from the WA community," he said.

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