Heat by Rob O’Neill

Phoney surpluses, unfunded liabilities

The great news over here is we can expect tax cuts of $10 a week following the surprise $7.5 billion surplus announced overnight. Now some of you may remember just the other day I chided Howard for his big spending.

“What the bloody hell are you on about Rob?” you may well ask.

Well, you see, there a surplusses and there are surplusses. I’ll let finance maestro Crikey explain how it works:

“The various Australian websites are carrying the basic AAP report on the booming tax receipts but none of them have linked to the detailed Treasury documents.

"You can only laugh as Cozzie [treasurer Peter Costello] claims he is reducing debt (in this case by $8.4 billion to $29.7 billion) at the same time the government's superannuation scheme motors ever higher towards an unfunded liability of $90 billion. A responsible government would not have allowed unfunded public sector superannuation to blow out by almost $15 billion in 8 years.

"It is amazing that the mainstream press continue to let Cozzie and Howard get away with this dodgy accounting.

"Meanwhile, the economy is booming and we're getting slugged like never before as personal income tax receipts power above $90 billion and even company tax leapt by $2 billion thanks to a good profit reporting season."

Now that $15 billion of unfunded superannuation would not only wipe out the current surplus, but would also wipe away every budget surplus since Howard took office.

Interestingly, the New Zealand government’s second biggest liability is, wait for it, unfunded government superannuation. In 1999 this unfunded liability amounted to $NZ8.5 billion. By the end of April 2003 it had grown to $NZ10.4 billion.

But financial trickery over here goes further than super. Crikey from July:

“With the Australian dollar rising to four year highs last month, the Reserve Bank wisely took the opportunity to offload $5.5 billion Australian dollars they acquired whilst defending the currency during its cellar-dwelling around the US50c mark in recent years.

"This is sound economic management.

"However, profits raised from the sale are not going back into the Reserve Bank of Australia, but instead are being pumped straight into the federal budget as Howard and Costello cook the books to claim a surplus. The government is hoping to rip almost $4 billion out of the RBA this year which is a disgrace when you consider Australia's pathetically low levels of foreign currency reserves."

Now I presume from this that a significant amount of this super liability was unfunded from before 1996 and the blame for that should go to Howard’s Labour predecessors. But then there is a huge argument that the credit for Australia’s long boom should go there too.

Crikey, followed an Australian Financial Review report to draw these conclusions in July:

“While Steve Bracks and Bob Carr are guilty, the worst offenders are undoubtedly John Howard and Peter Costello who claim to be responsible financial managers.

"Their fiscal credibility is blown out of the water by this one Financial Review fact: since 1995 unfunded Commonwealth superannuation liabilities have blown out by $20 billion from $69 billion to $89 billion - equivalent to 8 per cent of GDP.

"In other words, all these claims of 7 straight budget surpluses is a fib, although the big privatisations would have produced the occasional cash surplus even if superannuation liabilities accrued were properly accounted for.

"However, with proper accounting, the Howard Government would probably never have reported a recurrent surplus.”