Australia's budget process is broken

Treasurer Joe Hockey and Prime Minister Tony Abbott. Photo: Getty Images

It’s just hours to go until the 2015 federal budget and over the past week Australia has been in the throes of the customary festival of expectation management that accompanies the biggest political set-piece of the year.

Tony Abbott and Joe Hockey are under no misapprehension there cannot be a repeat of last year’s confidence-destroying backlash, where the spending cuts were seen as fundamentally unfair, both in depth and targeting.

So this time around they’ve been promising a dull and routine budget, and carefully announcing major policies well in advance, including the $3.5 billion childcare package, changes to paid parental leave, the so-called “Netflix tax” which means we’ll all pay more for software, music, games and streamed video content from international companies, and the crackdown on multinationals.

There will still be news in tonight’s budget but the overwhelming sense of surprise that greeted the first budget delivered by Treasurer Joe Hockey is unlikely to be repeated.

Last year’s fiasco, and some of what we’ve seen in recent weeks, highlight some of the many problems with the federal budget: it has become a platform for multiple, simultaneous large-scale policy announcements and the political advancement of individual ministers; the centre of all attention for Australia’s lobbyists; the cornerstone document through which governments attempt to shape the direction of the country, and the channel through which governments try to do the right thing by an economy which is increasingly at the mercy of global forces.

It is a bloated mess.

It combines huge amounts of policy, politics and economics into one big firehose spray unleashed on the Australian public on the second Tuesday of every May.

Sean Kelly, a former adviser to both Julia Gillard and Kevin Rudd, in a recent article for The Monthly, outlined the news management at work in the budget cycle and how governments try to plan and capitalise on the information flow around the budget.

For those unfamiliar with the basic management of political announcements it’s a good potted summary of how the whole process works. It also serves to highlight some of the weaknesses in how budgets are currently constructed and released.

Here’s Kelly:

On budget night, hundreds and hundreds of announcements will be made. Inevitably, all but a few of those will be lost to the greater media cycle.

Governments are keen to maximise the good publicity they can get out of a budget, and so, not wanting to waste a cent that won’t get them a radiant column inch somewhere, often leak small stories ahead of time.

Sometimes, on a bigger story, a minister will provide a drop to a newspaper then semi-confirm it the next day. The exclusive drop gets the minister a front page, the news is partly confirmed (giving the television news journalists enough to put together a story that will be seen by millions of people), but the news hasn’t been officially announced yet.

Refusing to officially confirm stories is an effective method for getting many bites out of the same cherry.

The other thing you often see ahead of the budget is the “dropping” of bad news. That seems counterintuitive at first, but most governments want budget night itself to seem like a gigantic gift to voters. Sometimes that means getting awful news, the equivalent of coal in a Christmas stocking, out of the way early, so that it doesn’t overshadow the good stuff they have planned.

The final reason that news is dropped out ahead of the budget is perhaps even more cynical, and probably more necessary: to please journalists. Press gallery reporters are obsessively scanning broadcasts, websites and newspapers right now, trying to figure out if the government has been kinder to somebody else. If it has – if, say, the ABC or the Daily Telegraph hasn’t been given a juicy announcement to itself yet – then the treasurer’s press office is going to be getting a loud, unhappy call wondering why. Governments are well aware that the journalists covering the lead-up to the budget are the same journalists who will be covering the budget itself a few days later.

As Kelly points out, the amount of information dropped on budget night is huge: announcements on spending plans on everything from jet fighters to jambaroos. Typically, a large-ish policy announcement or two gets held back, something fresh to set off a new conversation. (Last year, there was a slew of these – Medicare payments, university reform, welfare changes – and it was met by predictable confusion and anger.)

In parallel to all the policy detail, the government provides an update on the trajectory of the budget bottom line, which is the aggregate effect of all of its spending decisions, subject to some pretty critical assumptions about the value of the dollar, the oil price, and economic growth.

It is, if you’ll excuse the cliche, no way to run a country.

At this time of the year many businesses will be going through their own budget planning: where to spend, where to save, how to hit targets. But overall strategy and vision is run entirely separately. The budget just needs to be a tool for ensuring you can get there, and a way of tracking progress on the plan. With the federal budget process, the plan and the budget have become indistinguishable: the budget is the strategy.

The certainty businesses need these days are around big-ticket items: the corporate taxation rate, treatment of investment decisions for tax purposes, skilled migration policy, a competitive industrial relations framework, infrastructure spending and education reform. These are policy areas that require long-term plans, very difficult to land – as we saw with the collapse of the higher education reforms unveiled in last year’s budget – when governments are working on short-term budget cycles.

It’s a point made eloquently by Business Council of Australia president Catherine Livingstone, who is also chair of Telstra and the former CEO of Cochlear, and so knows a few things about budget process.

“We don’t have a long-term plan,” Livingstone said earlier this year. “And even if we had a long-term plan, the process we have now for implementing it means we are using the budget as a tool it was never designed to be.”

Livingstone says the “reform agenda is contaminated” by the budget process of running decisions through the expenditure review committee of the federal cabinet. “What we really need to do is decouple the two. Put the reform discussions back into the cabinet process where you have all of the perspectives… where you can have good debate and testing of the ideas.”

In fact it could be taken further than just cabinet, and spread out through the year in public discussions. The government’s tax discussion paper released earlier this year was met with some pleasant surprise even by Coalition critics. Consider how the higher education reforms – now dead as they were presented in last year’s budget – might have been received if the whole discussion had been separated from the budget and involved students, parents, and universities from the outset.

The defining economic theme of the past 12 months has been the uncertainty triggered by the absence of a political strategy around the budget and the ensuing chaos around various budget savings measures. The result was a softening in consumer and business confidence. While there’s plenty of evidence that consumers have recovered, in February we saw the major investment plans of businesses had collapsed to their lowest levels in five years, right at the time when the economy needs business to be making big, meaty plans for job creation, innovation and industry reform. The political chaos has real and significant dollar effects.

Barring a spectacular burst of economic growth, Australia needs to get used to the idea of budget deficits for a decade or more. The use of the budgets as the core platform by which to prosecute major reforms – the Abbott government will have only one more budget before another election – threatens to take difficult decisions off the table completely.

Tony Abbott said this particular budget wouldn’t excite people who are passionate about budget reform. But through what appears, so far, to have been a more sensible approach to communicating the thrust and measures of this year’s budget, the government may have stumbled on a way to reform the process of delivering the budget itself in a way that makes more sense for people and makes it more likely that, in an era of a fractured Senate, the parliament will get behind big changes because the community has been convinced of their merits.

And who knows? If ministers were forced to regularly develop and prosecute major policy reforms in their area, rather than hold off on policy details until budget night and then try to convince the country on it all over a few weeks, we might even get more value for our money out of them.

Now that would be a popular budget measure.

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