Coalition's $1.1 Billion Costing Error
Media Statement - 22nd November 2007
Figures released by Treasurer Peter Costello today show an elementary accounting error which has left a $1.1 billion costing hole in the Coalition’s budget bottom line.
It is astonishing that after 11 years as Treasurer, Peter Costello could make such a basic accounting error.
The error will also drive the surplus below 1.0 percent of GDP in at least two forward estimates years – in breach of the Coalition’s budget promises.
The Coalition’s failure to include adjustments to Public Debt Interest (PDI) result in the underlying cash position of the Budget being overstated by:
- $16.7 million in 2007-08
- $132.9 million in 2008-09
- $357.0 million in 2009-10
- $588.8 million in 2010-11
Across the forward estimates these accounting errors add up to a $1.1 billion costing black hole.
As a consequence, the Coalition’s budget promise to keep the surplus above 1.0 percent of GDP in each of the forward estimates years has been breached in:
- 2009-10 – 0.99 percent
- 2010-11 – 0.96 percent
The public debt interest impact arises because budget accounting rules assume future surpluses are placed on deposit in the Reserve Bank where they earn interest which is returned to the budget bottom line.
When future projected surpluses are reduced because of policy decisions the smaller surpluses which are banked result in a loss of interest earnings.
The detailed tables released by Peter Costello today do not account for this.
To make matters worse the Coalition has also relied on dubious accounting tricks to give the appearance of meeting its 1.0% GDP goal.
The detailed costings released by the Treasurer today show the Coalition has had to pull $398 million out of defence spending in 2010-11 to make up for its fiscal profligacy in that year that threatened the 1.0% of GDP budget promise
The Coalition and Peter Costello’s economic credibility are now officially in smouldering ruins.