Replace this partisan Treasury with an independent budget office
The independents have asked for Treasury briefings and advice on ALP and Coalition policy as part of their decision-making process. At face value this would seem prudent, even sensible.
Unfortunately there are some stumbling blocks that prevent this from being wise.
In the first instance, as the Coalition has made clear, Treasury has already leaked Coalition policy costings. This is an act of extraordinary bad faith and reflects poorly on what should be the premier policy department in the commonwealth public service.
But that is just the tip of the iceberg. Treasury has become partisan. We've known this since Ken Henry was highly critical of Coalition policy in a leaked speech before the 2007 election. Matters were made worse during the Kevin Rudd prime ministership when cabinet was bypassed and Treasury seemingly elevated to decision-making status.
Lenore Taylor and David Uren's excellent account of the Rudd era, Shitstorm: Inside Labor's Darkest Days, tells how Treasury was involved in managing Australia's response to the global financial crisis; in particular, how Treasury had abandoned longstanding economic principles and decided it would be the first to recommend fiscal intervention in the event of an economic slowdown. Then there was its strong endorsement of pink batts and the "Rudd bank", and the not-so-small matter of the mining tax.
That last ill-fated proposal was dreamed up in Treasury and foisted on an unsuspecting public. To make matters worse, Treasury made several factual mistakes during the process, arguing, for example, that Australian mining companies paid about 17 per cent in tax and quoting an academic US working paper to that effect when, in fact, the effective rate of tax mining companies pay when you add in all taxes and royalties is about 41 per cent. Not to mention the kerfuffle over the amount of revenue the Resource Super-Profits Tax would raise relative to the minerals resource rent tax. Would the RSPT have raised $12 billion or $24bn? Was the revenue cost of the change to the MRRT $1.5bn or $6bn?
These are large numbers to be throwing around and the differences suggest the government and Treasury were just making it up as they went along.
Adding to its problems, Treasury published a graph in the budget papers arguing that early aggressive fiscal intervention had reduced the effect of the GFC in some economies. It turned out the data supporting that argument had been cherry-picked. All up, Treasury has just not had a good time recently.
It is one thing to claim Treasury is partisan and that it has made a large number of avoidable errors in the recent past. It is quite another to claim it is negligent.
Yet that is what the caretaker Gillard government expects us to believe. Treasury would have been extraordinarily negligent if it had not undertaken a cost-benefit analysis of the national broadband network or even a business plan.
This means somewhere in the bowels of Canberra there is an NBN cost-benefit analysis that should be released to the public and, more importantly, to the independents for discussion. Government hypocrisy on this issue should be exposed. As award-winning internet entrepreneur Bevan Slattery has argued on this page, the chief executive of NBN has admitted it will never be commercially viable and, as a result, it should not be an off-budget expenditure item.
This kind of Enronesque behaviour makes a mockery of public finance. It also undermines claims that the budget will be returned to surplus in 2013. The problem with the NBN is there are so few tech-heads who really understand the issues. Meanwhile, the government has a $43bn boondoggle with which to bamboozle the electorate.
Senior Treasury officials must know they will be facing some tough scrutiny in the event of a Coalition government.
The ALP economic record has been designed and implemented by Treasury beyond simply providing technical advice. It would be judging its own performance.
One of the great lessons of the Rudd era is that Westminster institutions can be subverted. The notion of an independent, non-partisan public service has served us well for a long time. Yet it is clear Australians can no longer rely on that convention.
Treasury simply cannot brief the independents on ALP and Coalition policy. Everything it could say should have been said in the pre-election fiscal and economic outlook. For Treasury to do further work on Coalition costings would be a breach of both the caretaker conventions and the charter of budget honesty.
This leaves us with a problem. In the short term, the independents want some economic advice; but the Coalition can't trust Treasury.
There is no shortage of economic expertise in Australia; the Productivity Commission, for example, could undertake the costings; or any one of the large accounting firms or economic consultancies has the necessary expertise.
But there is a need for long-term solutions, too.
Former opposition leader Malcolm Turnbull's idea of a parliamentary budget office that would be beyond government control and report directly to the parliament should be implemented in the next term of government. The present Treasury department should be gutted to create the new parliamentary office, with the existing Treasury becoming a political adviser to government and being acknowledged as such.
Before the next election, which is likely to be sooner rather than later, all parties should be obliged to submit their policies for costing.
An additional reform that should be considered is a functional audit of all government departments and statutory bodies. Right now financial audits occur. But the problem isn't whether public servants are running off with the petty cash. The far greater problem is whether appropriate decisions are being made. For example, an audit of the Reserve Bank could ask why it was raising interest rates in early 2008 as the GFC unfolded. Similarly, why have Treasury revenue forecasts been so poor for such a long time? An independent budget office would undertake a public a cost-benefit analysis of the NBN.
In other words, there is a lot of work to be done. The work is important and wouldn't be cheap. Creating an independent economic advisory service in Canberra would not be cost-neutral, but it would provide better, independent information and advice than the Treasury has been able to do.