The success of the Parliamentary Budget Office
To a jarring, discordant soundtrack, we see the vision of then prime minister Julia Gillard and Greens leader Bob Brown signing their names and shaking hands.
Indeed the Coalition’s “The Greening of Labor” attack ad, released 10 days ago, shows the handshake no fewer than three times.
The message is very clear: in the event of another election in which neither major party wins a majority in the house of representatives, Labor would sign another formal deal with the Greens, allowing it to govern. And that would be a very bad thing.
It would, as Treasurer Scott Morrison never tires of saying, bring the “caravan of chaos” back to Canberra.
But like just about every other scare campaign of election 2016 – on the privatisation of Medicare, on superannuation changes, on asylum seekers, on negative gearing et cetera – the scare is confected. Not just because Labor swears it would do no such deal, but because that formal agreement on September 1, 2010, was not in any way a scary document, although it carried within it the seeds of a revolutionary change.
The agreement did not commit Labor to implementing any actual Greens policies. It gave the Greens no ministries and no formal role in government decision-making.
The Greens simply promised to guarantee supply to Labor and to oppose any motion of no confidence in the government from anyone who was not a member of the Greens. In return, Labor promised to support a number of reforms to the conduct of parliamentary business and to work towards a few agreed and quite laudable policy “goals” – a referendum on Indigenous recognition in the constitution, the setting of some form of carbon price, and reform of the political donations system.
The revolutionary bit came in one sentence, halfway down page three of the document, at point 4.3(a), under the heading “Further reforms”. It called for the establishment within 12 months of “a Parliamentary Budget Office within the Parliamentary Library…”
It was little noted in the media at the time, but in the four years since the Parliamentary Budget Office (PBO) began operation in July 2012, it has proved to be the greatest advance in fiscal accountability in many years, some say since the senate estimates committee system was set up in 1970. And it has dramatically changed the way election campaigns run.
“The institutional impact of the establishment of the PBO has been huge,” says John Daley, chief executive of the centrist think tank the Grattan Institute.
“It’s been much larger than most people realise. I think it has been far more beneficial as an institution than was hoped for even by the people who proposed it. It has made it possible for non-government parties to do serious policy work and propose material policy changes.”
Before the PBO, the policy debate at election time was no fair contest. When it came to working out the cost of policy proposals, the attempts of oppositions, minor parties and independents were not quite back-of-the-envelope but they were certainly no match for the boffins of the treasury and finance departments, which worked for the government.
“So,” Daley says, “it would be quite likely there would be an error in there.”
It didn’t matter if the policy idea was fundamentally sound, a simple error of arithmetic was enough to see it killed off. Every campaign featured numerous stories about costing “black holes”.
But not anymore. The establishment of the PBO has levelled the playing field.
The way it works is simple. Before they put a policy into the public domain, parties can confidentially submit them to the PBO’s team of economic bureaucrats, to have them costed.
The office is modelled closely on the United States’ nonpartisan Congressional Budget Office. The PBO runs on a budget of about $8 million, and a staff of about 40 expert number-crunchers, many of them formerly of the departments of treasury or finance. Because of the election, that number is up to 50-odd at the moment.
“And their costings are as good a guess as anyone else’s, including treasury,” Daley says.
“We can all take the PBO’s estimate of the impact on the bottom line as being as good a forecast as we are likely to get.”
And this has greatly encouraged parties in the process of testing new policy ideas. In the year of the previous election, 2013-14, the PBO did more than 1500 costings. This year, the number is more than 3000, as the parties have put multiple options and engaged in the iterative process of tweaking and re-costing their ideas. They are refined, tested and, in some cases – obviously, given the number submitted – dumped. But when the ones that make it through the process are finally released, they are released with unprecedented confidence.
Labor people readily concede that without the existence of the PBO, Bill Shorten could not have run the adventurous policy platform he has ahead of this election. Absent the PBO, Shorten’s Labor would likely have been forced to the old small-target strategy of oppositions past.
Greens operatives revel in the fact they can now combat the perception they are altruistic dreamers, and assert the same degree of fiscal rectitude as the major parties.
For example, on Wednesday, when the Greens announced their plan to impose a new tax on sugary drinks, as France, Belgium, Mexico, the Scandinavian countries and most recently Britain have done, they were able to adduce not only the health benefits of the policy but the budgetary ones.
“The Parliamentary Budget Office has estimated that this measure will raise more than $500 million in revenue per year, not including flow-on savings to the health system,” the announcement said. “A tax starting in September 2016 would raise $2.1 billion over the forward estimates.”
When Labor put out a media statement shortly after the government released its budget, it was able to contrast the positive bottom-line impact of its proposed changes to negative gearing – an extra $600 million in revenue in the first year, rising to $8 billion in 2026-27 – with the detrimental effect on revenue of the government’s proposed reductions to company tax – a cost of $200 million in year one, rising to $13 billion in ’26-27.
The Labor release included a little coloured bar graph to make the comparison even clearer. Under that graph were the words, “Source: Parliamentary Budget Office”.
Once you start looking, you see those words everywhere on policies, in stories about policies, name-dropped by politicians in press conferences and debates. The endorsement of the PBO is like a gold star on a child’s homework. It’s the economic assessment seal of approval.
Perhaps the best way to illustrate the change it has made is by way of an example of what often happened in the bad old days.
Take Medicare Gold, the policy announced with great fanfare by then opposition leader Mark Latham and his shadow health minister, Julia Gillard, about a week before the 2004 election.
It promised to issue special gold-coloured Medicare cards to some 1.2 million Australians aged over 75, which would give them free public or private hospital treatment.
The policy lasted but a few days before the Department of Finance ran the fiscal ruler over it, and found Labor had underestimated the cost by $726 million over four years.
“The estimated cost is higher by $1.9 million in 2004-05, $22.9 million in $2005-06, $370.6 million in 2006-07 and $330.8 million in 2007-08,” the department said in a statement.
Medicare Gold was dead, and so were Latham’s chances of beating John Howard – although in truth Latham’s campaign was looking pretty terminal even before that happened.
Phil Bowen remembers it well, because he was the man heading the budget group within the Department of Finance that did that devastating costing.
Bowen’s place in this story is a particularly poignant one, as these days he heads the Parliamentary Budget Office. He has qualifications in both economics and accounting and agricultural science, is an alumnus of Harvard Business School’s advanced management program, and was awarded an Australian Public Service Medal in the 2006 Australia Day honours. He’s done two stints in the Department of Finance and not long after he pranged Latham’s flagship Medicare policy he took up a position on the board of the Asian Development Bank, from where he was recruited to this job.
“It’s been an interesting journey over the past four years,” he says, in his rather mild way.
“I think it’s had a big impact. Parties these days do not just go out and make rash promises without coming to us first – quite often with a range of options. It’s up to them which one they pick, but at least they know what it is going to cost them before they start making public pronouncements.”
When it comes to decisions about the overall level of spending, the amount and type of taxes needed to fund that spending, whether they favour big government as the Greens do or small government as the Liberals do, “this is a matter for the parties”.
“We will cost the individual elements. When they put out their lists prior to election day, the public can be reasonably confident in the bottom-line figure the parties attach to their election commitments,” Bowen says.
“In the past that wasn’t the case. There was a capacity for parties to have publicly announced policies costed by Treasury and Finance during the caretaker period but you got some fairly perverse results.”
Like Medicare Gold.
Ever the nonpartisan bureaucrat, Bowen makes a point of sharing the credit around as he talks about the process that led to the PBO being set up.
“Back in 2009, Malcolm Turnbull in his budget reply speech said he supported the idea. Then in 2010 the independents and Greens got together with Labor to push it. Then there was the joint select committee that looked further into it and legislation was passed in late 2011.”
In fact Turnbull – in his first stint as opposition leader – did more than “support” the idea of a PBO. He advocated it forcefully and at length.
“The Coalition believes that honesty in fiscal policy would be served by the creation of an Australian version of America’s Congressional Budget Office, which has for many years provided the congress with objective and impartial advice and analysis on fiscal policy and the effects of new policies,” he said, and went on to explain in some detail how it might be structured.
But he also noted: “Governments never welcome greater scrutiny, and so I’m under no illusion that this proposal will be greeted with any great enthusiasm by the prime minister and the treasurer.”
History would support such cynicism. All too often the major parties pay lip-service to measures that would increase accountability when they are in opposition, and then dump them once they get into government.
And so it might have proved once more, but for the extraordinary result in the 2010 election. Labor needed the support of the Greens and independent members Rob Oakeshott, Andrew Wilkie and Tony Windsor to form government, and the Greens and independents were insistent on the establishment of a PBO.
Ben Oquist was chief of staff for Bob Brown at the time, and he negotiated the agreement with Labor. He gives credit to Turnbull for helping get up the PBO. The establishment of such an office had been Greens policy for some time before Turnbull spoke out, says Oquist, “but by calling for it publicly, he gave the idea a big lift”.
In the end, all parties signed on to the proposal. The “caravan of chaos” delivered consensus.
Oquist points to another irony: having helped in getting up the idea, the Coalition, now under the new management of Tony Abbott, was not an enthusiastic user of its services.
As he wrote recently: “The Parliamentary Budget Office (PBO) has been quietly reshaping Australian politics. During the 2013 election, the PBO was still finding its feet and the political parties were getting used to it. In 2016, its full and beneficial effect is showing up in the public debate.
“In the past, the costing of policies was hugely contentious. Famously, the Abbott-led opposition even refused to accept Treasury costings.”
It’s not hard to see why. The Abbott opposition had nothing to gain by letting the public in on its plans for fiscal austerity.
It only released its highly suspect policy costings 48 hours before polling day. As one member of the economic commentocracy wrote dismissively at the time: “Tony Abbott has released his full costings and it wasn’t worth the wait.”
The Greens, on the other hand, had everything to gain. As Oquist says, they had been “previously too easily accused of lacking economic competence…”
Thus, in the latter part of the 2013 campaign they gave the PBO 85 policies to re-cost, along with a request that the results be published on the PBO website. They have done the same this election.
Whatever else one might say about the Greens, they are unafraid of scrutiny on this issue. By the time you read this, they will likely have put out their whole list of “saves” and “spends”.
The government, meanwhile, under the more fiscally responsible leadership of Malcolm Turnbull, has been putting out its costings progressively, through Treasury and Finance. Presumably an aggregated list is not far off.
Labor is expected to release its full suite of policy costings in the coming week, probably on Monday. All or almost all of them will have gone through scrutiny by the PBO.
“Black hole” scares
And this will make the final week of the election campaign very interesting. In the old days, before the Parliamentary Budget Office, the back end of election campaigns was often dominated by debate about alleged “black holes”.
We’ve already seen one attempt by Treasurer Scott Morrison to do it this time. A month ago he gathered the media and claimed Labor’s costings were wrong by $67 billion over four years. But the press conference ended in ignominious retreat, after the media noted there was a glaring black hole in Morrison’s claim of a black hole. He was forced to admit an error of $18 billion or more.
Ever since, he has largely restricted himself to rhetorical attacks and sloganeering, and avoided talking hard numbers.
There has been no shortage of scare campaigns in this election, but John Daley credits the PBO with at least limiting the scope for scare campaigns on the basis of policy costings.
“The advent of the PBO means we can have a mature, sensible conversation about whether various policy changes are or are not in the public interest. That’s the kind of debate we want, not a debate about arithmetic.”
A mature, sensible debate. Really?
“My observation is that, in this campaign, people are not really buying the scare campaigns, whereas the policy substance of, say, negative gearing – you can mount a respectable argument that it shifted a substantial number of votes when it came out.”
Many theories have been advanced in this campaign about why the contest has turned out to be as close-run as it is. And no doubt many factors are in play. But it may just be that the PBO is among them, because it has actually allowed for more thoughtful voters to focus on some quite bold alternative policies.
Whatever the reason, it looks like it will be a far closer result than many would have expected six months ago.
Just this week, a Newspoll suggested that, once again, neither major party might win a majority in the house of representatives. It’s a long shot, but it could be that Greens and Nick Xenophon Team members hold the balance of power.
And what would the caravan of chaos bring us this time?
Outlining his party’s log of claims at the National Press Club on Thursday, Greens leader Richard Di Natale said: “I announce today that reform of our political system, in particular donations reform and a corruption watchdog, will be central to any negotiations if no party is able to form a majority after July 2.”
Oh, no. An end to corporate donations and an ICAC-style body to guard against corruption. Chaos.
This article was first published in the print edition of The Saturday Paper on Jun 25, 2016 as "Cost and found". Subscribe here.