“Subsequently we’ve heard the sucking sound as the money’s gone back down the gurgler, which has made Rudd, Gillard and Swan look worse than they were,” he said. “And it’s now making Abbott and Hockey look worse than they are.”

‘They spent the lot’

To be fair to Howard and Costello, they were encouraged by the bureaucrats in Treasury, the Australian Bureau of Agricultural and Resource Economics and even the Reserve Bank to think this boom was different, and that the money would continue to roll in for decades to come.

“That was a failing. We’ve never had a permanent boom before,” says Richardson. “Anyway, they spent the lot. On tax cuts, baby bonuses, and so on.”

John Hewson, former Liberal leader, economist and now professor with the Crawford School of Public Policy at the Australian National University, underlines the point: “The tax cuts Howard and Costello gave are now costing [the budget] about $30 billion a year, and the deficit’s $40 billion.”

Without those cuts and the $9 billion Hockey gave – unasked for and against the will of treasury – to the Reserve Bank, says Hewson, “the deficit problem wouldn’t exist”.

And that’s without including some $40 billion in tax concessions for superannuation, which accrue overwhelmingly to the wealthiest 20 per cent of taxpayers.

“You can easily add it up to show that the deficit that exists today is a fake number,” says Hewson. “They’ve basically imposed it on themselves.”

More correctly, they imposed it on the less well-off.

Matt Grudnoff, the senior economist at The Australia Institute, calculates that over the seven years from 2005-06 to 2011-12, the federal government lost $169 billion in revenue as a result of the income tax cuts alone.

“Of the $169 billion in tax cuts, 42 per cent of them, or $71 billion, went to the top 10 per cent of income earners,” he wrote in his paper “Tax cuts that broke the budget”. “The top 10 per cent got more in tax cuts than the bottom 80 per cent.”

On Grudnoff’s figuring, this year’s budget would have been fatter by almost $40 billion had the cuts not been given.

Rudd followed suit

The Howard–Costello government delivered five rounds of income tax cuts, and had promised more during the 2007 election campaign. The incoming Rudd Labor government, having committed to match the Coalition’s promised cuts, delivered them.

So Labor cannot escape all blame for the current state of the budget. But it is largely guilty of just proceeding to do what the Howard government would have done, by hacking into revenue. Its spending, contrary to the consistent assertions of conservatives over recent years, was not the issue.

That has been made abundantly clear by various analyses of the structural decline of the budget.

Having detailed two of these reports last year – by the treasury department and the independent Parliamentary Budget Office –The Sydney Morning Herald’s economics editor Ross Gittins apportioned the relative culpability of the two parties thus:

“They say it’s only when the tide goes out you discover who’s been swimming naked. It’s the same when you calculate the ‘structural’ budget balance. And we’ve just learnt that though Wayne Swan’s cossie has slipped revealingly, Peter Costello was completely starkers.”

Not surprisingly, Swan endorses these analyses: “It’s the revenue, stupid,” he says. “It was a revenue story throughout.”

Chris Richardson agrees.

“To understand Canberra over the past decade, you have to follow the money,” he says, and takes us on a quick tour, complete with roller-coaster graphs.

The boom that made the Coalition government look good lasted less than a year into Labor’s term in office, he says.

“Then it all came crashing down with the GFC [at the end of 2008]. Then it roared back up in 2010-11, which is when Swan said we would be back in surplus in three years. He thought the commodity boom was returning, but in reality coal and iron ore prices had peaked in 2011.”

Last surplus forecast

On October 22, 2012, MYEFO came out, for the last time forecasting a surplus in 2012-13.

“That happened to be the first day for payment of the new mining tax and the day for the quarterly payments of a couple of other taxes,” Richardson recalls.

But receipts were nowhere near the forecasts issued that very day.

“By the end of the day, MYEFO was all over, red rover. The surplus was gone. It was a bizarre day. From there it was a steep line of revenue write-downs,” says Richardson.

Swan recalls that time only too well, and particularly the press conference he was forced to give five days before Christmas 2012, “when I had to go out and admit we weren’t coming back to surplus”.

“The last lot of revenue downgrades was so large it would have been damaging to the economy to try to force it back to surplus in 2012-13,” he says.

That was the worst, but he says: “All of our MYEFOs from 2010 onwards were like bloody budgets, because every forecast came in under.”

Joe Hockey is fast learning how that feels.

The important thing about all this history is how it illuminates the present.

It is largely because of decisions taken a decade and more ago that young unemployed people, pensioners, students, the sick and the recipients of foreign aid are now being targeted by budget cuts.

The Howard government was blessed with a huge windfall. Fiscal prudence, based on the understanding that all previous mining booms have ended in busts, would dictate that revenue be preserved somehow

All a leftie conspiracy I suppose Longie?

The Howard government have had their time.  They are now where they belong.  In the rubbish bin of history.  With their workchoices.      

Carbon tax gone.  Still waiting for the $550 a year better off.   

I've been saying for a while now that Costello's biggest mistake as Treasurer was funding permanent budget measures out of temporary revenue. Costello had better options, some examples:
* invest in infrastructure, perhaps by creating an infrastructure fund
* put the proceeds into the Future Fund
* buy back outstanding government bonds

These are examples of temporary expenditure that offer a benefit to the country and where spending can be stopped without causing political pain.

Costello did none of these things. Instead, he cut taxes and ramped up middle class welfare. The massive expansion of middle class welfare under the Howard government was their worst legacy, and it's going to take some years to unravel this waste. Cutting taxes was also a poor decision.

Bam wrote on Jan 3^rd, 2015 at 9:31am:



this is a trick question.

Are you in favour of automatic tax indexation?

You know what I am leading to so it will be interesting to see what you reply with - if you reply at all.

St George of the Garden wrote on Jan 3^rd, 2015 at 9:36am:


as you do so spectacularly well, you got everything wrong.  they sold around $50B in assets to pay down a $96B debt of which just $9B was accrued during Howards time.  They also put $45B into the bank in cash as well as created a $80B future fund or a grant total of $220B EXTRA that didn't exist before.

you claim the surpluses were spent - but they weren't.