How the deficit obsession is eroding the budget's usefulness

When government administrations change we can expect a change in the political spin, but anyone who has studied Commonwealth budgets over the years will have noticed something far more significant than swings between Labor and Coalition priorities. There has been a slow shift in the way governments explain their budgetary priorities.

Over many years the budget has morphed from an economic statement explaining how the government allocates resources, to a fiscal statement. The emphasis has shifted to explaining how the government will manage the budget surplus or deficit, and therefore government debt. Over the last few years what passes for an “economic debate” has tended to focus on the fiscal deficit, as if balancing the budget were the hallmark of sound economic management. Much of the detail about appropriations has been dropped.

For example, 25 years ago in 1990, it was far easier for someone to assess how Commonwealth outlays on tertiary education or pharmaceutical benefits had changed over the years. In that budget they could have simply turned to the table of outlays by function and sub-function to get a 14 year picture – ten years of history, and four years of the budget and forward estimates.

Figure 1 from Budget Paper 1 for 1990-91 shows the first of six pages of such detail for that year, where 95 sub-functions are tabulated.

Figure 2 shows another table, covering the same 14 year period, in which distinctions are drawn between current and capital outlays and between transfers to individuals and government “own purpose” outlays – crucial issues in any debate about the “size” of government.

It’s not that such information has been suppressed under the Official Secrets Act. It’s still somewhere (not always in the same place), in historical budget papers. But its collation would be a major research task, and practically impossible for someone pressed to make a comment on the budget.

That detail last appeared in 1998, Treasurer Peter Costello’s third budget. Since then budget documentation hasn’t become slimmer. Rather, such detailed economic data has been replaced by a great deal of extra financial data.

Emphasis has shifted from explaining “what is the government doing with our taxes?” to “what is the government doing to manage its finances?”. It’s as if we are no longer citizens who trust government to attend to our collective needs. Instead we have become mere shareholders in a financial institution, indifferent to how that institution invests, so long as it covers its risks and does not accumulate too much debt.

Politics trumps economics

While most budget documentation is written in deadpan bureaucratise, some documents (besides the budget speech) are in a much more politicised style. There are often one-off publications, such as last year’s “Partnership for Regional Growth” – a document pulling together appropriations in different portfolios to promote the government’s bounties for those living outside our capital cities.

The other regular document with a political spin is Budget Paper No. 1 - the budget “strategy and outlook”. This is the main statement that not only brings together estimates of revenue and expenditure, but also provides the government’s policy explanation for its budget.

At first glance it appears to be a technical document. It has a great deal of standard content, such as estimates and projections of revenue and expenditure, but much of its text is politically crafted, and there is a great deal of discretion in what its writers choose to include or exclude.

For example, in the budgets brought down by the Rudd-Gillard governments, this document had a section on government debt in an international perspective, pointing out that our debt was modest in comparison with other countries. That section is no longer included.

In Treasurer Wayne Swan’s 2013 budget, the first part of Budget Paper 1 explained the government’s priorities, with details of initiatives in school reform, health services, and disability care. In the following year, when Treasurer Joe Hockey brought down his first budget, that same section was more about “budget repair” and “reducing the footprint of government”.

What’s really going on?

The shift in focus fits with what is known as “public choice” theory. Public choice theory sees government spending as a necessary evil. It accepts that there are certain things only government can do (such as defence), but, in line with neoliberal economic ideology, it rejects the idea that there are other things governments can do better than the private sector. It dismisses the idea that in areas such as health, education and infrastructure there are market failures requiring government involvement.

The only trouble is that in a democracy voters and politicians (including irresponsible state premiers) conspire through the political process to demand public services, meaning there is a political imperative (rather that an economic justification) to keep funding them. Keeping this aggregate demand in check becomes the prime function of government, and it doesn’t matter much where the money is spent, because it’s all, or mostly all, wasteful.

Rather than an economic statement about how the government provides useful public goods, where the market cannot provide or cannot do so efficiently, the budget has become a political statement, about providing public funding for a population’s unreasonable demands for spending on health, education and other wasteful services. The ideal is to spend just enough on these services to keep at least 51% of voters on side.

It doesn’t matter if we find it hard to trace governments’ shifting expenditure and revenue priorities, for that detail doesn’t really matter. All that really matters is keeping those figures as small as possible, without the government losing office.

So if we’re disappointed by coverage of the upcoming budget, we shouldn’t get too annoyed by those trying to make sense of it. It won’t make much sense except in the economically impoverished framework of “public choice” theory.