Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Budget 90: former Finance Minister says the Budget has loosened fiscal policy and claims one way to cut outlays is to abandon the 1991 tax cuts

PAUL MURPHY: In his budget speech last night, the Treasurer referred to `a period of sustained budgetary discipline unprecedented in Australian history'. Well, today, the man who was, until this year, Paul Keating's right-hand man for enforcing fiscal discipline, said it was unarguable that the Budget had loosened fiscal policy. The former Finance Minister, Senator Peter Walsh, went on to observe that one way to tighten fiscal policy further would be to abandon cuts in income tax due next January. This report from our economics correspondent, Peter Martin.

PETER MARTIN: No one, perhaps not even the Treasurer himself, knows more about how to cut spending than the man who presided over weeks and months of painstaking, detailed and painful razor gang sessions at which every piece of government spending was attacked and justified, and attacked again, line by line. His assessment, his first in eight years about a budget in which he was not directly involved, is at odds with the Treasurer's.

PETER WALSH: I think it is unarguable that the Budget does entail some loosening of fiscal policy. Estimates for Commonwealth outlays have become positive in real terms for the first time in five years. Even prior to that, there was a significant weakening of fiscal policy throughout the course of the last financial year, and on the outlay side of the Budget, when outlays which had been predicted to decline by 0.7 per cent in real terms, in the end, declined by only 0.2. The figure of 0.6 per cent positive, for this year, really ought to be adjusted for the agreements pursuant to the Premiers' Conference where the States repay debt, which is recorded as a negative outlay on the Commonwealth's account, and the reduced payments to the States because of the transfer to them of the bank accounts debit tax. That is about 1.2 per cent of Commonwealth outlays, but there should be a further offsetting adjustment there. There is nearly $500 million additional outlays in this Budget because of the increase in the wool levy and the consequential collection of that by the Government and payment to the Wool Corporation.

When the inflation rate is going up, it makes fiscal policy look tighter than it, in fact, is, because, firstly, some Commonwealth programs are cash limited. Secondly, those that are indexed - there is obviously a time lag between the recording of a higher than anticipated rate of inflation and the adjustment of the index payments. Because when the deflator estimate is pushed upwards, it makes the outlays figure look tighter, there are some people in the Government - well, at least one - who used to regard that as an indication of having a bit of freeboard, that if the target was minus one half per cent real growth in outlays and the GDP deflator pushed the -0.5 per cent up to 0.7 per cent, then that was a signal that we could spend a bit more money to meet the target of 0.5 per cent. Or in other words, an interpretation of events that says because inflation is more out of control than we previously thought it was, an appropriate policy response to that is to increase Commonwealth outlays.

PETER MARTIN: So if Paul Keating didn't save enough money last night, how does Peter Walsh believe he could have saved more?

PETER WALSH: Well, one obvious way, of course, would have been to forgo the tax cuts that have come in on 1 January - not the only way. If you look through statement number 3 and the list which goes on for about eight pages, of additions to outlays pursuant to decisions made after the 1989 Budget, you will find in there an extraordinary large number, usually of fairly small amounts, of items the quality of which I suggest is, to say the least, suspect. Things like transferring the Marine Safety Authority to Newcastle which is down at a bit over $17 million; there's no functional need to do that. Hosting a Conservation and National Resources Seminar in Australia - $2 million; Biodiversity National Strategy Conventions Climate Change Policy, which is described as a `multifaceted program', initiatives of $5.5 million, and all that sort of thing.

Well, you can see that many of those items that I've quoted are going in a particular direction. Quantitatively, they are not terribly important; qualitatively, however, I fear that they are, insofar as they give us a glimpse of the mind-set of the Government. It does worry me that things - all of those small items; there are 30 or 40 of them altogether if you like to go through them - it does regrettably indicate that circuses are taking priority over real issues. Thank you.

PAUL MURPHY: Senator Peter Walsh, and Peter Martin put that piece together.