Recording date:

This Capital Ideas event explored the causes of repeated budget projection errors. Describing how these are affecting policy choices and asking whether anything fundamental has changed that might require a rethink of how budgets are prepared. It also explored the institutional barriers to better outcomes, and the opportunities for reform. Katharine Murphy, political editor at the Guardian, and 15-year veteran of the Canberra press gallery, discussed the issues with John Daley, CEO of the Grattan Institute, presenting new research from Grattan Institute’s work on budget policy.

Speakers: Alison Dellit (A), Katharine Murphy (K), John Daley (J) Audience; (Au)

Location: National Library of Australia

Date: 27/06/2017 

A:            Good evening. Distinguished guests, ladies and gentlemen, welcome to the National Library of Australia. I’m Alison Dellit, the Acting Assistant Director General of Corporate Services at the National Library.


As we begin I’d like to acknowledge the traditional custodians of this land, the Ngunnawal people. I thank their elders past and present for caring for this land that we are now privileged to call our home and acknowledge that stewardship and custodianship of knowledge has been occurring here for tens of thousands of years.


Tonight is our second event with the Grattan Institute. Since its launch in 2008 the Grattan Institute has established a profile as a leader of independent analysis of Australian domestic policy, aiming to influence both public discussion and senior decisionmakers. Its focus is on the important rather than the urgent, on the things that could make a difference to the wellbeing in Australians over the long run, not distracted by three-year electoral cycles. In a way it is very like the National Library of Australia. We too try to take a long view.


We’re also very grateful that the Grattan Institute is one of the first organisations to have deposited all of their electronic publications with the National Library and to have done so under a generous rights agreement that enables us to preserve and make those accessible to people across the country through the Trove system.


With three days remaining of the financial year, budgets, forecasts and financial statements have been at the front, the back and the sides of my mind. It’s very fitting that tonight’s discussion is all about budgets and the challenges they create and it will be refreshing to take a broader view on that impact. Our speakers tonight are John Daley and Katharine Murphy. John is the CEO of the Grattan Institute, he’s one of Australia’s leading public policy thinkers, he has more than 25 years’ experience in the public, private and university sectors. He’s worked for ANZ and McKinsey in a career that also includes expertise in law, finance, education and workers’ compensation. And we have John to thank for making this event partnership possible.


Katharine is the Guardian Australia’s political editor. She’s worked in Canberra’s parliamentary gallery for 15 years. In 2008 she won the Paul Lyneham Award for Excellence in Press Gallery Journalism and in 2012 she was a Walkley Award finalist in the Best Digital Journalism category. Please join me in welcoming both of our speakers to the stage.




K:            Well thank you so much for that lovely introduction which also cuts off me having to introduce John quite so extensively as I was going to which is great. And it’s lovely to see so many people out on such a chilly evening at the National Library which is one of my favourite places in town so it’s lovely that we’re here with you guys to have this conversation tonight.


I’d like to reiterate my respect to the traditional owners as well and just sort of run through where we’re going to go with this conversation this evening. So tonight we’ve come together to talk about budget forecasting which I think is fair to say is one of the vibrant niche manufacturing industries of Canberra. John is more than adequately qualified to speak on this subject and I hope we’ll have a very stimulating conversation and I do hope that there’ll be some questions or – well more questions than comments at the end.


So people in this audience will be very well aware of what I call the annual budget dance. Basically as we get closer to a budget the degree of intensity and panic starts to play out in the news cycle about when precisely we’re going to return to surplus. So we go through this period every – in – before every budget day, all the hand-wringing and so on and so forth then we all go into the budget lockup if we’re journalists like me and presumably the expert lockup if you’re John and hey presto, magic happens. At the end of every four-year cycle there’s either budget back to balance or budget in surplus. And it happens every single year, we keep pushing it out further and further and further.


And the consequence of pushing out the surplus or the balance projection out further and further is that we avoid having a whole lot of difficult conversations about what we might need to do in order to bring the budget actually back to balance or surplus. I think we can all recognise this dance so we want to unpack this dance a little bit this evening. And so I reckon we’ve been playing this game at least since the global financial crisis.


J:             Yeah.


K:            Same old game. And I think John’ll explain that over the next half an hour or so so also if you’re there with your smartphones out there there’s some hashtags up here behind me and also some handles if you want to be both in the room and virtually within the room and I’ll try and have a look as we’re going along. So, John, why don’t you kick off? Where does our story start? The budget dance story start.


J:             So the story starts with this as you say, the reality of a budget deficit of 2 to 3% of GDP, that’s more or less where we’ve been for the last few years and then yes, this happy Treasury projection that we will be in surplus or close enough at the end of the forward estimates. And the conclusion of course therefore is well no need to do anything too difficult because otherwise – ‘cause what’s the point? We’re going to be in surplus anyway so why would you go through all of the political pain of either raising taxes or reducing expenditure if you’re going to be in surplus anyhow? And then of course at some stage over the next 12 months we then sort of put out either a MYEFO in November or we kind of bury it in the budget documents and say oh well it’s not quite showed out quite as well as we’d hoped and the surplus is in fact not going to happen in now three years’ time, it’s only going to be in four years’ time and all of the – pretty much all the forecasts will be downgraded in between so that’s roughly speaking what’s been going on.


And I guess we’ve been doing this work at Grattan Institute to try and understand well, well why is this happening? Now the sort of conspiracy theory is well that’s because successive Treasurers have kind of told Treasury to do terrible things and pretend that there is a surplus or return to surplus even though there isn’t one and I think the story’s actually a bit more complicated than that and we’ll get to how it is that we got there. But the first thing we’ve got to do is actually explain and pull apart what’s going on here. So if we start here with a kind of basic chart which is what the budget looks like. This is thought about as a percentage of GDP and the black line is where we actually are and have been and as you can see it’s kind of bounced around between 2 and 3% of GDP for most of the last six or seven years. Don’t get too excited about the bounces, particularly this one here because a lot of that was about governments essentially pulling things between different years. And it’s pretty clear that we’ve sort of been here for now quite a long time.


And then we have the successive forecasts, the one made in 2010 that was supposed to be in surplus by 2014 and then the one in 2011 said that we’d be in surplus in 2015 and then in 2012 we’d be in surplus by 2016. You kind of get the picture. And after you’ve been doing this for once or twice you could maybe just sort of explain it away as bad luck but after you’ve been doing it for one, two, three, four, five years in a row because there is absolutely no way that that one’s going to happen and probably more like eight years in a row it is starting to look very, very, very unlucky and that maybe we should start reacting to this.


K:            Just let me pick you up on the – because I know we’re going to burrow down into the intricacies of this. You said a minute ago that there’s a conspiracy theory about political interference, in essence that Treasury is under pressure to produce the budget the government of the day wants to be able to sell. Do you think that there’s no – that political calculations don’t enter the mind of Treasury officials?


J:             Look, Treasury officials are human and I know there’s you know there’s rumours to the contrary but all the people I have met in Treasury are indeed human and if they are human chances are they would be at least susceptible to that kind of pressure at the margins. But that said I think the people involved are honestly doing the best they can, they are very skilled people and look, I’m sure there’s kind of pressure at the margins but to kind of get it badly wrong by sort of 2% of GDP, let’s put that in context. That’s about 30 odd – $35b. That’s quite a lot to be wrong by in a single year. That’s about 10% of the Commonwealth Government’s revenue. Now if I were a corporate and I had this kind of hockey stick – or in fact these ones are swan di – sorry, these ones are swan dives, these ones are hockey sticks and if I had those kind of things I would have been fired by now. But institutionally it’s not changing. There may or may not be some political interference but I don’t think that explains an error of that magnitude and I think that’s what I want to get to.


K:            It’s not so much interference that I mean but you’re cognisant of what’s required, you’re cognisant of the story that the budget needs to tell. It’s not so much - I mean you know Wayne Swan or Scott Morrison or Joe Hockey rings someone and starts making threats but you know the budget dance, you know it.


J:             Yeah. Look, I’m sure there’s some of that going on and indeed this is a problem that’s not unique to Australia, it’s happened in a lot of OECD countries over the last 15, 20 years, it happens worst in EU countries who were trying to make sure they got into the Euro where of course there were rules around all of this stuff. And the countries that seem to have done least of it are those where the process of developing the budget forecast is as far removed from government as possible. So I’m sure there is something to that fact, that Treasury knows in a sense what number the government would like. But I think it might be worth kind of pulling apart you know what’s been driving it.


K:            Yes well let’s do that, what about why are the forecasts, why have they missed?


J:             Yeah. So if we ask you know what have they missed on? So what we do here is we pull them apart. The orange and yellow bits here, those are the actual policy decisions that governments make on budget night and what we’re looking at here is the difference between what the government said would be the budget deficit or surplus and what four years in advance – that’s the end of the forward estimates period – and what actually happened. Now of course that means for the last three years here, the ones in grey, those haven’t actually finished happening yet and chances are as we’ll see, they will in fact get downgraded and these kind of bars will get bigger as we get closer to 2021. But these are the years we’ve actually had, as you can see we’re about 3% worse, 3% of GDP worse than the balance originally forecast. So some of that is because governments make policy decisions and they have generally – well certainly the spending changes have generally cost the government money. There’s been revenue decisions that have helped them but just bear in mind the magnitude of these things, we’re talking about - in general about 1% of GDP and as you can see often they’ve kind of cancelled each other out.


The really big bars on this chart are the brown bits which are the revenue parameter changes which is Treasury speak for the world turned out to be less rosy than we expected and consequently we collected less tax. So that’s what has done most of the damage. As you can see from this chart the big part of the variations has essentially been about those revenue accidents. It’s just that as you can also see there’s been a lot of accidents in a row.


K:            Yes. Well a car crash followed by a car crash.


J:             Yeah. And when you ask well why did those revenue accidents happen, partly it’s about the way that we have guessed at what GDP growth would be so obviously that’s a big factor that plays into how much income tax you collect. The orange bars here are the expected growth in GDP and the red dots are what actually happened a year later. And as you can see essentially before the financial crisis if anything Treasury tended to low – sorry I’ve got those the wrong way around. The forecast is the red bit and the orange bit is what actually happened. As you can see in – Treasury tended to lowball the forecast in general, they sort of tended to pick on about 5, 5.5% of GDP and it typically turned out ‘round 6 and 7 before the financial crisis. Since the financial crisis of course it’s turned out the other way ‘round, Treasury’s tended to guess at well you know anywhere between 5 and 6% of GDP and the reality of course has been materially lower than that partly because iron ore prices have been lower than we expected, partly ‘cause wages growth has been worse than we expected.


K:            But how would you – just pulling back from – pulling back a little bit – how are you an optimist – well how are you a pessimist before the GFC and then an optimist afterwards?


J:             Now that’s a – I mean that’s a great question ‘cause it goes to the core of how all of this works. So the way that Treasury does it, and interestingly it’s the way that most people who are trained in macroeconomics do it, is that you essentially take a really long time series of whatever variable it is that you are looking at, whether it’s wages growth or GDP growth or whatever it might be and you ask well what’s the long run average? And then you say I’m going to assume that over the economic cycle I’m going to get back more or less to the long run average. And then of course that begs the question well how long is the cycle? And typically the models assume it’s only five years long bearing in mind of course that since the financial crisis is now eight years and counting and we still don’t appear to be back to whatever normal was before the crisis.


And then of course – and then – not of course – and then there’s a kind of special twist to this in terms of the way the Treasury thinks about it which is that they assume that because the economy’s been running slower than quote normal trend there is an output gap and that over the cycle, ie, over that five-year period that output gap will get closed, in other words the economy will run faster than normal to use up the spare resources. And so what that means is that the slower the economy goes the faster they assume it will be going by the end of the cycle. And so what that does is that it pushes up the estimates and so in general in response to your question you know why is it that you get these estimates kind of things are slow? And the answer is well in a funny way the slower the things are going the faster you assume that they’ll be going in the sort of out-years of the project.


K:            Does it demonstrate that – and I know we’ll get into the reviews that are being done of the modelling system Treasury uses but does it indicate that basically Treasury has not come to terms or the models have not come to terms with sustained low growth because it’s sort of a phenomenon that we’re witnessing around the world, is that all of a sudden you’re applying the same models to the same set of circumstances but your models don’t work anymore?


J:             Yeah so reality’s wrong.


K:            Reality’s – well no, my dear, reality isn’t wrong, that’s the point. So is that it? Is it that economic policy officials, and we shouldn't personalise this to Treasury because I’m sure they’re not the only offenders but did they not see the sustained period of low growth that we’ve been in? Is it basically that?


J:             That’s certainly a large part of what is going on and to be fair you know if you just saw low growth for two or three years you’d say oh well you know that’s kind of ups and downs and after six or seven years you’d say oh well there’s theories that say after the kind of financial crisis we had in 2008/9 you’d expect it to be kind of slower for longer but now we’re still in the same world, going up a little bit but not all that much, it is getting harder and harder to explain away. And in particular we have seen a period of low productivity growth, people have been trying to explain that away as measurement error and all the rest of it but it is again getting harder and harder to explain it away. But the kind of school that so many of these people are being trained in is one that says do not assume there’s been a structural break until the evidence is completely overwhelming.


K:            And when do you hit that tipping point?


J:             Well I don’t know, it seems to be a long time, we haven’t hit it yet. And you know the most that’s happened is that Treasury’s effectively pulled back the productivity long run growth rate by about you know 0.25%. Well that’s kind of helpful but it does look as though the long-term reduction has been materially more than that. And the place that I think you really see this illustrated the most and someone in – [senior in] 18:01 politics the other day described this as the chart that has probably broken the entire model.


K:            Oh it’s that chart.


J:             So we’ll show you this chart so this is wages growth, nominal wages growth. How much does your salary go up year to year assuming that you’re doing exactly the same job? If you’re a politician of course as we know it’s just gone up by 2% which –


K:            And the tax cut.


J:             And the tax cut but to be slightly fair to the politicians and the Remuneration Tribunal 2% is almost exactly what the rest of the country has got on average over the last 12 months. So what Treasury does here, the black line again is the actual, this is what’s actually happened, the wages growth back in 2011/12 at the height of a mining boom was a happy sort of 3.5, 4%, happy days, real wages growth. Since then it’s been falling, falling, falling and as you can see we’re now down at about 2%. And then these are the forecasters, they were – well we’ll stay in happy days for 3.5, 4%, that didn’t happen and then oh well maybe they were just un – luckily happy days and in fact you know we’ll go back to 2.75, 3% and then it’s kept falling. And here’s the really interesting thing, as it’s kept falling the forecasts have kept increasing. Indeed the out-year of the forecast has gone up as the reality went down. And of course what that is being generated by is this phenomenon that I talked about earlier, the way that these models are constructed are kind of the slower that things are going now the more the model will tell you it kind of goes up by the end of the period.


Now of course the problem is most of these economic things. If I asked you what’s nominal GDP growth you probably have no idea but nominal wages growth is something that kind of people touch and feel you know it’s kind of how much of a wage rise did I get at the end of the year? And so if I tell you that that’s going to be 2% at the end of this year or the end of last year you go yeah, yeah, that’s probably kind of about right. If I tell you it’s going to be 3.75%, 4%, close enough in four years you’d be saying that’d be good. And then of course the problem with this is that we are essentially picking you know the midpoint or we should be picking the midpoint of range of uncertainty. The reality is none of us know what these things are going to be but we’ve got to make a you know a best guess.


And the problem with this is that it just cannot be a best guess. If I say to you look, wages growth is pretty sluggish around the developed world, it’s now 2% in Australia you know I think there’s a good chance it might just stay at 2% for the last four years. You’d say look, John, that’s a bit gloomy but you may well be right. Now of course if that’s my bad case and I'm going to say that my central case is call it 4% to make the maths easy then that must mean that my kind of happy case is 6% so it should be as likely as having – just you know bumping along at 2% for the next four years, that we’ll be at 6% by the end of four years and at this point you’d probably tell me I’m dreaming.


K:            Not so much.


J:             And that is why I think this is the chart that has kind of broken the system because it is very hard to say with a straight face my central case estimate is that wages growth will do 3.75% in four years’ time.


K:            Riddle me this, if – because I’m not an economist and I don’t – I obviously don’t conduct a little economic model in my office every day but if in my line of work you – a conclusion is brought to you that does not seem rational or does not seem consistent with the evidence before well then it’s easy for me to say well that’s got to be crap, it’s got to be wrong. You know standing around the computer in Treasury does the chart come out and someone picks it up and says really? Or is the point the model you know some sort of slavish adherence to the model that sort of disconnects you from the actual consequences of your forecast? I’m genuinely seeking to understand this as a phenomenon.


J:             Yeah. Yeah and I think there’s an awful lot of that going on because the short answer is you know this is forecast about the future, no-one’s got any idea you know we’ve got to have a methodology, we’ve got a methodology, we’ve been using it for however long so let’s just turn the handle one more time. And as we’ll come to in a while you know the reviews that Treasury has conducted of this have kind of all sort of said you know more or less politely you might want to sense some of the answers a bit more. But clearly that’s not happening that much because it is – I just don’t see how you could sense check this one and not say wait a minute, that doesn’t look right. And of course the problem is this is not some kind of you know minor detail buried in the budget papers somewhere, this is wages growth, this is what drives bracket creep, this is what drives the single biggest revenue line in the budget. You get this one wrong, it is very hard to get everything else right. And so clearly that sense check’s not getting done and you can see how big a deal it is. You know if we simply bump along at 2%, that’s got to be possible, it’s about $13b a year on the budget’s bottom line by the fourth year so that is big enough to care.


And if we look at how things have actually gone – this is what’s actually happened in terms of personal income tax receipts over the last couple of years, usual story, the actual line in black, the kind of forecast in succession in dotted lines and if you look at how badly things have been going recently, in 2016, so this is ’15/’16, we’re about $16b behind the original estimate in terms of money in the door in Treasury. If we look at 2017, and this number here is almost certain to happen because of course it comes out of the May 2017 budget so by that stage you more or less know what your income tax receipts are going to be, and on that basis they’re about $26b behind the original budget projection.


So these problems that they’ve had with income tax projections are a really big deal and it’s – the income tax one is the one that makes the biggest difference but there’s been a whole series of other things where the problem seems to be not so much the macro forecast, which is where all of this is – a lot of this has been coming from, but how do you translate those economic forecasts into how much revenue will I actually collect? So personal income tax I’ve just shown you but if we look at company tax, superannuation tax and capital gains tax – capital gains tax by the way is essentially an overlap between superannuation and the income tax lines, it’s just another way of cutting your numbers – as you can see on all of these reality has fallen a long way south of the budget projections time and time and time again. And we look – we probably don’t have time today to kind of delve into the detail of why those specific revenue lines haven’t matched reality but it does seem to be a bit of a generic problem and that problem probably takes us to what’s really going on here.


K:            Yeah well quite, what is really going on here, John?


J:             So what’s going on? And I think the short answer, and I think you were talking about it earlier, is that the world may well have fundamentally changed but the model hasn’t. And Bob Gregory drew sort of the economic world’s attention to this recently by looking at what’s known as the Phillips curve. Very important for people who worry about unemployment. The theory is that as unemployment goes up then wage growth will go down so the theory is that if you wind up here with high unemployment then wage growth will go down and of course the converse is also true, the theory is that if unemployment goes down so I’ve got fewer people unemployed then I’ll see faster wage growth.


Now here’s the catch, if we look at this historically this is roughly speaking how that relationship worked in the pre-1990s and then we appear to have a different curve from 1990 to 2009 and then we appear to have a different curve again after the global financial crisis. So even though unemployment has been by historic standards quite low we’re not seeing the kind of wages growth that we saw before the financial crisis. Indeed if you think about where we are the moment we are roughly speaking about here. And then as you can see the budget essentially assumes that very happily we go back to the old curve. Now that strikes me as –


K:            It’s nice that the old curve showed up, it’s nice.


J:             Yeah but it’s a lovely way of illustrating that we appear to have structural changes but we’re not building those into the model, we’re just assuming that we go back to what used to be normal. And I think that’s the fundamental challenge in this area, is figuring out well when is it that we in fact have had a structural change?


K:            Well when are we in a new normal?


J:             Yeah, exactly and you know I guess our argument is geez you know in fact growth was already quite a lot slower before the financial crisis and the four or five years before the financial crisis, we’ve now had eight years since the financial crisis. You know after 12 years of this you kind of have to start worrying that we might be in a new world.


K:            And what are the key drivers of the new world in terms of this – why are workers’ wages bearing the brunt of the new world? For want of a better formulation.


J:             Well I think one of the reasons we have been reluctant to change the models to acknowledge this structural shift is we don’t really know. There’s lots of theories so one theory is that productivity growth is lower than it used to be, lots of theories about why that might be. Some people who say that in effect the rate of technological progress is slower than it used to be. Another theory is around essentially the population ageing and that leading to lower rates of innovation which I guess is a related theory. There’s a claim that it’s all about mismeasurement. I think the best evidence from Brookings and others is that the mismeasurement might explain a little bit but not very much, there’s always been measurement problems with productivity growth. In terms of why wages growth is so low there’s an increasing theory that this is because one way or another corporate rents are going up so large corporates are getting better at essentially manipulating markets in totally legal ways, I’m not suggesting it’s illegal but essentially playing in markets in such a way that they extract higher profit margins.


And there’s a theory that kind of allies to that which is that in that world in fact they innovate less because if you can make more money by essentially getting government to make rules in your favour then you spend your time innovating on you know how to get government to do things in your favour rather than figuring out ways you’re going to keep your customers happier. So there’s lots of theories about why we might be in a different world, I think the reality is you know we’re kind of too close to it to really have hard evidence on any of those theories. The only thing we’ve got hard evidence for is that the numbers have been pretty gloomy now for quite a long time.


K:            Yeah. I find that we’ve sort of hit the end of the technological change curve slightly terrifying in terms of the future outlook.


J:             Well I think one of the problems here is that people don’t understand - forget the difference between change and rates of change so I wouldn’t be suggesting that technology stopped, clearly it hasn’t, clearly there are technology things today that were not here two years ago but that doesn’t mean that productivity growth has increased, that just means that there is some. And the question, if you’re going to keep seeing productivity growth at the same rate as we have historically, is that we have to have the same rate of change so however fast we were inventing things 10 years ago, 20 years ago, we have to keep inventing them that fast. And there’s a whole series of theories as to why that may not be happening, I mean one of them is essentially we kind of found most of the big things, we had this enormous increase in the number of people who were scientists who were busy finding things. They kind of found most of the low-hanging fruit and although there’s more scientists than ever it’s just getting harder and harder to find things that will make a big difference.


K:            Yeah, find the big breakthrough.


J:             Yeah. There’s another theory which is essentially that however cool smartphones are, essentially relative to electricity they are small beer. And I think there’s some truth to that. My favourite way of illustrating this, if you go to the Melbourne Museum and it’s got these rooms that are basically domestic rooms from different eras and you go to the one from the 1980s, maybe ‘70s and you look at it and go oh yeah you know the tele wasn’t as good but you know it kind of looks pretty familiar. You go to the 1950s one and you think ooh, that is a whole different world. And I think it’s because since you know that was the period at which really electricity was just starting to affect every single thing that we did. And the reality is it’s a pretty amazingly cool technology and essentially we’ve worked through most of the ways that you can use electricity and you know we’ll doubtless keep finding marginal applications like cars but most of the game’s played out.


K:            Anyway sorry I just became momentarily depressed. Back on message. So where are we going next? So we’ve got multiple Phillips curves and a new reality. Now are we into the common affliction of forecast-led denial yet?


J:             Yeah, I think we are so what does this do so the short answer is –


K:            I quite like this one.


J:             The short answer is because they’ve got forecasts that all look happy Treasurers basically stand up and say nothing to worry about. And it is interesting you know we’re on track for a surplus in 2012/13 and this provides a solid foundation for the targeted investments we make tonight. In other words I’m going to spend some money because I know I’m going to be in surplus in four years’ time. Now as we know it didn’t turn out like that. And you know question, what would the world have been like if instead Wayne Swan had been basically forecasting a deficit of 2 or 3% of GDP as far as the eye could see? And the answer is well he probably would not have been announcing targeted investments tonight.


K:            Probably not.


J:             He would have been announcing I'm really sorry but we’re going to have to tighten our belts a lot harder. Then we have Joe Hockey. I can report tonight that despite the headwinds our timetable back to a budget surplus is unchanged. Didn’t work out so well.


K:            Shame about the headwinds that came back.


J:             Shame about the headwinds. And then Joe – and then Scott Morrison this year – sorry, last year - this budget keeps us on a sustainable path to bring the budget back to balance, the sustainable path that 12 months later we are in fact not on and we’re now on a different path, apparently still back to surplus but –


K:            It’s a related path but it’s a different path, for sure, yes.


J:             Yeah. And you can see this in terms of what governments are actually doing so if we look at how it is that we are supposed to get back to surplus in four years’ time so this is the budget deficit in 2016/17, the year we are just about to finish in two days’ time so we’re at about $38b or at least that’s where we were as at the budget. Now let’s just imagine a world in which everything grew at GDP so our expenses grew at GDP, our revenue grew at GDP, everything else grew at GDP. In that case we would expect that the budget deficit would grow at GDP and over four years that’d be $7b. Now what is in fact happening is that by the end of the forward estimates we’re supposed to be in surplus by $7b so how does that happen? And the answer is well we expect that income tax will go up by $37b a year. More than GDP. Happy days. Well it might happen.


We also expect that some other revenue lines will grow a little bit faster than GDP, these ones here. We expect that spending restraint will happen and we’ll spend about $5b less than the normal increase in GDP you know all of those numbers you’d look at and go oh look, yeah, I’d probably believe it you know that’s plausible. And then the only work that we really do in the budget in terms of actual budget measures that either increase taxes explicitly or reduce spending explicitly are worth about $7b in 2021. And so in terms of getting this swing from what’s effectively a budget deficit of $45b all the way up to $7b, as you can see pretty much all of the work is being done by fiscal drag.


K:            Do people know what fiscal drag is? No, you need to explain.


J:             No so that’s the way that if I pay you $100,000 this year and inflation goes up by – let’s call it 3% so next year I’m paying you $103,000 but I don’t change the income tax scales. So that means that although you’re being paid the same amount in real terms you’re going to pay more tax. And so the percentage of your income that you pay in tax is going to be higher. In effect you will have less money in your pocket. Commonwealth Governments love this because it’s in effect a tax increase that they don’t have to legislate and as you can see it’s a really, really big deal.


K:            And most people are not even that aware of it.


J:             Yeah.


K:            Because it sort of happens so incrementally in terms of how people move up into the next tax bracket.


J:             Well it’s not just moving up into the next tax bracket, even if you’re not moving up into the next tax bracket the marginal $3,000 you’ve earnt is above the threshold of $80,000 and so that means that $3,000 is not being taxed at your average tax rate of – I don’t know, probably about 20% but at your marginal tax rate of – what’s that? 37c and so that’s why you wind up seeing your average tax rate go up even though your real income hasn’t moved at all. And so that’s what does so much for the budget repair work and as I said Commonwealth Treasurers love this ‘cause it’s not really like hard work.


K:            Well poor old Scott Morrison said that he didn’t love bracket creep and that he wanted to give it back until such time as the GST debate crashed and then all of a sudden we don’t hear much about bracket creep anymore so it’s – Treasurers can not love it for a period of time but they also have to have a solution for how they get the revenue if you’re not in essence applying a silent secret tax on the entire country so –


J:             Correct. And one of the big dangers for next year’s budget – be a pre-election budget probably – is that the Treasurer announces a whole bunch of tax cuts off the back of you know happy Treasury forecasts that in reality we can’t afford and that’s you know that’s a real concern. And if you look at you know well what have Treasurers done? The short answer is well not very much explicitly. If we look at it over a longer term so this is looking at what Treasurers have actually done in each budget that will affect the fourth year and we worry about the fourth year because you know that’s the one that kind of washes out all of the ins and outs and the little bits and pieces. That’s if you like the closest estimate we get to what a budget has done in terms of really changing the underlying structural position of the budget. And as you can see in 2007 that was if you like the financial crisis budget, the decisions made in that year hit the budget balance. In four years’ time – sorry, that’s 2006/7, that’s the last Costello budget – hit the budget bottom line by about $20b which would be kind of handy today if we had it but we don’t. So that’s the substantial tax cuts and spending increases that went through in 2007.


And then as you can see we roll through a whole series of things – the financial crisis budget in ‘07/’08 actually didn’t have much impact on the fourth year, it was actually quite well designed. And we can kind of roll through all of these. As you can see the black line is the kind of actual change for the fourth year of the budget and it’s typically been around about 3, 4, $5b in most budget years. And when you remember our budget deficit is 38 and has been around about there for the last you know however many years, six years or so 3 or $4b a year is really not going to change much.


The only exceptions to this are essentially Wayne Swan’s last budget which improved the budget balance by about 12 billion and Tony Abbott’s first budget which was of course supposed to improve the budget balance by about 16 or $17b a year in the last year and of course much of that budget did not in fact happen. And it’s also I think helpful to put the budget we’ve just had in context, at least in theory it does about an $8b budget repair job – be a little bit less than that given what’s now happened with Gonski but you know relative to many of its predecessors it actually did more in the way of real budget repair, hard decisions than most of its predecessors.


K:            Well we can thank the banks, can’t we, for a portion of that?


J:             Well we can’t hank the banks for about a billion of it. We can thank – there’s some higher education money that’s in there and then of course there’s - the big numbers are essentially the Medicare – sorry, the disability levy. And of course whether that gets through.


K:            Whether that gets through the parliament is anyone’s guess at this point in time.


J:             Is up – yeah.


K:            Yes.


J:             So what should we do? Well –


K:            You tell me, John, what should we do?


J:             So Treasury has reviewed this, it’s had reviews in 2012 and 2015 and 2017 and they basically all said there’s too rigid adherence to models and there needs to be more judgement and they all recommended that there be a new economywide model that would essentially run over the entire four years of the estimates period. And as you can see we’ve now had three reviewed that have all more or less recommended the same thing.


K:            So what’s the blockage? What stops it from happening?


J:             So partly building a you know you beaut economy wide model that you know covers the entire economy and projects things four years in the future is not a trivial exercise. Partly - I can see why people are just much more comfortable saying well the model says X so we’re just going to do what the model says rather than intervening and saying well look, I just don’t reckon that’s right. And at a more subtle level to intervene and say I just don’t think that can be right or to say that the trend has changed is a very different intervention. Then I think there’s another thing going on which is if we look at where talk of the people outside of Treasury are coming from so this is the consensus of all of the professional economic forecasters, the banks and so on, chief economists and so on, they only provide two-year estimates, not four-year estimates and essentially this is looking at wages growth and as you can see they’ve all been very happily optimistic too. And indeed if we overlay that with Treasury’s forecast remembering – or projections more accurately which is you can remember actually go out for four years – as you can see in fact if anything Treasury’s been a little bit more pessimistic than the professional forecasters.


K:            So do modellers need to see other people?


J:             Yeah, I think they do. So this actually got presented a couple of weeks ago at the Melbourne Economic Forum and the way it was presented was look, Treasury’s not doing any worse than the professional forecasters so that’s alright then. Of course I actually stood up, I said well I’m probably about the only person in the Melbourne Economic Forum who’s not an economist so I’m not going to think about this like an economist, I’m going to think about this like an anthropologist and what I see is herd behaviour. Basically you’ve all been trained in the same school, you’re all thinking about this problem the same way, it certainly looks like the world has changed around you and you know we’re all the same, you get trained in a discipline, it’s really hard to turn around to everybody else in your field and say you know all those things we just accepted as verities for a long time? They’re not working so well.


K:            It’s difficult though too in the sense that there’s – with Treasury forecasting obviously we’re back to that political dimension to your work, that it’s not just sort of something that’s happening in the polite little think tank with everybody chatting amongst themselves and there’s no consequences. If you do something that’s out there with your model, if you produce something that could be God-forbid open to criticism or critique from good people like you it’s sort of like there’s a kind of a – there’s – well I don’t know, perhaps a barrier to breaking through the issue.


J:             Yeah. I mean if you think about this as an anthropology problem I think you’re exactly right you know to come out and say you know all the professional forecasters, they’re all wrong too, the way we’ve been thinking about – the way my colleagues have been thinking about this problem for the last five years, none of that’s working. I mean that would take serious courage, really bigtime courage and that’s you know it’s going to be hard to do that. And so you know I think one of the tough questions is well so how do we break this? ‘Cause you know the most interesting question in some ways about all of this is one that Bob Gregory asked in his lecture – Freebairn Lecture at Melbourne a couple of months ago in which he said how can we get this wrong for so long and yet institutionally there’s kind of no change? And I think the answer is the kind of you know very human anthropological things we’ve been talking about plus the institutional things around you know if you just imagine what the conversation would be – look like, if John Fraser walks into Scott Morrison’s office and says well, Scott, you know the boffins have been thinking about the model and you know that surplus we forecast you know in May? It’s not our best guess anymore, in fact our best guess is now about $30b less. It’s not going to be an easy conversation.


K:            Yeah, exactly, exactly. I think that was sort of broadly where I landed. Now some questions now, I think. I think we need to open up. Now a couple of people have registered for a question so why don’t we say is Sam Malloy in the audience and if you are pop up your hand? We might get – have we got a microphone we can get to Sam. Oh he has one.


J:             Coming rapidly.


K:            Do your worst, Sam.


Au:         <inaudible> 45:09.


K:            Oh you don’t have to stick to your script, it’s fine.


J:             Yeah, ask a new one.


K:            You go for it.


J:             It’s just coming to you and if you can wait for the microphone that’d be great because that way everybody who downloads this afterwards for their edification including out of the National Library archives will be able to hear your question.


K:            Yes, we want our grandchildren to hear your question.


Au:         Thanks, thanks for a really interesting talk, that was really fascinating. I guess one question I do have is so to the extent that over the long term it might not actually be that the model is wrong or the assumption about a return to long-term trend is itself wrong, all the evidence previously may well have suggested that that in fact is correct, part of the big problem here is about being able to tell when we’ve had a structural change and then correcting the assumptions for that. I guess my question then is how do we tell? What do you think would be the evidence that would suggest in a timely fashion that something like a structural change has occurred to enable the assumption to be downgraded or even upgraded over the long term?


J:             Yeah and I think you got to understand what you can and can’t do here. I think the reality is you are never going to pick the turning point, that’s an exceptionally hard thing to forecast. What you can do though is say you know my best guess about the next couple of years is essentially what I see for the last couple of years. You know if we’d been doing you know 5% wages growth two years ago and we’d done 2% this year then I’d say look, 4% next year’s actually not a bad guess. But when I see a slow steady decline not only in Australia but in – across a lot of the developed world then I think my better guess is that the next two or three years is probably going to look much like the last two or three years.


K:            Or when the Reserve Bank Governor stands up in a public forum and says workers need to chase pay increases.


J:             Yes well actually I didn’t put up the RBA’s wages forecasts but they’re just as bad as the professional forecasters’.


K:            Well sure but that’s a sign, in my experience that’s a sign that something’s shifted.


J:             Yeah, I think that’s right and of course the Reserve Bank Governor does that knowing that you know –


K:            It’s complicated.


J:             - him just – yeah, it’s complicated, him just telling workers to do that is not actually going to change the world or at least it’s unlikely to do so very much and so the reality is we may well be in a different world. So I think in answer to your question I think more humility that there might well have been a structural change and essentially that means you know I think a better technique rather than sort of simply taking the long run average for the last 30 years is to take averages over much shorter time periods and say look, that’s probably a better guess about the world that we are in. And in particular it deals with a lot of the political economy that has been lying behind what we’ve been talking about which is you know if I project a happy return to surplus despite what’s been going on for the last couple of years I essentially let my politicians of the hook.


If I say you know the world is pretty tough and you know it’s probably going to stay tough then the worst that happens is that the world gets better than we expected and governments are going to have a larger surplus than they expected which is usually not a problem that they have for long. Whereas the political economy in the other way doesn’t work so well which is I project a happy return to surplus, consequently I don’t make any tough decisions and consequently we never return to surplus. And of course the implication of what we’ve been doing is very large budget deficits essentially unintentionally and the implication of that is the younger people of Australia are going to pay more tax, a lot more tax over the next 20 or 30 years to pay for the deficits we have run over the last eight.


K:            Oh not only tax but more for their education, more for their health services, more –


J:             You know they’re going to pay more one way or another and government’s going to be able to afford less in the way of services ‘cause someone’s got to pay for it.


K:            Exactly. Who else has a question? The back.


Au:         Hi, James Ottoway, Department of Prime Minister and Cabinet and PP Society. John, we’ve seen five years before the GFC, eight years after of a new world. Is this the dreaded secular stagnation that we’ve been hearing about?


J:             Well it certainly looks like it. It’s kind of consistent with the theory. You know if you’re running a kind of theory contest between Robert Gordon and everyone else at the moment and applying it to the Australian numbers and for that matter a lot of the numbers around the developed world you’d be saying Robert’s kind of looking right at the moment, we do appear to be in a world in which economic growth in general and productivity growth in particular is a bit slower than it used to be. And again I think one of the problems that people have with this is they say Robert’s secular stagnation and Robert Gordon, they’re saying that there’s going to be no growth and clearly there is growth to which the answer is that’s just not his theory. His theory is that growth will be slower and that appears to be precisely the world that we are in.


And I guess it’s that fact that you know the theory may not be perfect but at least there’s a kind of halfway plausible theory of what’s going on here, it does appear to fit the facts, the facts have been going on now for quite a long time, this is not just a bad year, this is kind of a bad extended patch that makes me think the prudent thing to do would be to assume that that’s the world we are now in. And if it turns out that we’re in a better world well that’s not going to be a difficult problem to deal with but assuming that we in fact are in a better world and then it turning out to be much the same as it’s been for the last eight years creates a whole series of problems that are just compounding themselves as we speak.


K:            Douglas, over here. There’s also with that though with – that’s what I was saying about – that we’ve come to the end of the technological curve is kind of terrifying to wrap your mind around. It’s not as terrifying as climate change, it’s not that terrifying but it is kind of paralysing in the sense that if politicians stand up and acknowledge that publicly and affirm that reality then you’re talking about ripping up the whole social compact that governments have had with their people which is an implied contract, right? That we’re in this period of growth and prosperity, linear prosperity that lifts the fortunes of everybody in the country and if you’ve got to stand up as a politician and say oh well that was good while it lasted but it’s probably over now, that’s quite a tough call.


J:             Yeah and I think that – I think the way that you’ve jumped to that is actually the precise problem that they’ve got in communication which is I don’t think they should be ‘cause I don’t think they would be standing up and saying growth has come to an end. What they’re trying to communicate is that growth is slower than it used to be. The boats are still rising, they’re just not rising nearly as fast and the reality is when the boats are rising pretty slowly then there’s going to be a lot more boats that are in fact sinking and so that does make life tougher for everyone and in particular for politicians you know ‘cause losers always yell louder than everybody else. So yeah you can see why they’re not very enthusiastic about having to communicate that.


K:            Yeah well it’s not just losers anyway – sorry, we will get to you, I won’t monopolise John so dreadfully as I'm currently doing but it’s not just a matter of losers screaming loudest, it’s politicians are standing in the middle of their own massive disruption at this point in time, we see that all around the world and that’s no small thing, what’s happening in politics at the present time so I think it is genuinely difficult and I know what you’re saying about nuance, God forbid, imagine nuance in politics, imagine. But that we’re not shrieking from the rooftops saying growth is at an end, we’re not saying that but still acknowledging that what’s happened over the last 50 years, say is not going to happen for the next 50 years, it’s a pretty big thing for politicians to say in the current environment, I reckon. Which is not letting them off the hook, it’s just a comment. Anyway sorry, as you were.


Au:         Well I guess this follows onto that. [Joe Roecheck’s] 53:19 finance. We’ve focused very much on the forward estimates in year four you know successive year four is success and yet we’ve had a succession of intergenerational reports which point out very, very clearly that the headwinds get stronger and stronger with government spending because of changes in population and the sorts of programs that more older people need, cost of technology etc. Shouldn’t we be shifting the paradigm from the forward estimates to actually what lies beyond?


K:            Good lord, who let this man in?


J:             Well I think we should be doing both, I mean if we can’t get it right inside four years we got no chance inside 10 and in fact there’s a way of analysing – I didn’t bring this chart but there’s a way of analysing the intergenerational reports which shows that as the actual budget deficit has got worse the intergenerational reports have essentially projected the long-term surplus to get better. So even in the intergenerational reports we’ve seen you know elements of this kind of creeping in, I think. I agree we should be really worried about the long term although I think we should be worried about the right things. You know the kind of conventional wisdom is we got to be worried about the aged pension exploding and the ageing of the population.


In fact what the intergenerational reports themselves have done is illustrate it really well that the big things we should be worried about are increased spending per person of a given age and aged care spending, those are the two things that will really hurt in the long run and figuring out how to deal with them. There is something of an increase in the aged pension as you’d expect with an ageing population but it’s not the big thing that really hurts. So I think that you know at least amongst the people who really study them carefully they’ve been quite helpful in explaining where the real problems are, I don't think they’ve permeated the public consciousness and yeah, I’m not hopeful that we’re really going to deal with those problems in you know now for 10 or 20 years out when clearly we are not dealing now with the problems that are you know only four years away.


K:            Who’s next? Goodness me, all over the place. Over here, we’ll come down to the front.


Au:         I just wanted to take your anthropology approach a little bit further and suggest – or ask about other populations for comparison so thinking historically what happened say around the recession we had to have and the oil shocks, what happened to the popula – the group of forecasters and what happened there and was there a change in the way in which those people thought about the way in which they were doing the equivalent of the modelling? I realise the technology was different and the projections were different but also the users of projections now and economic analysis, it’s not just governments, it’s also large corporates. Are they believing everything that Treasury and the other forecasters are providing or are they being more sceptical and taking a more low-growth approach?


J:             Lots of questions in there so let me answer the last one ‘cause I think it’s the easiest one – not that it’s easy. Which is well what are corporates doing? And I think the short answer is look, they’re probably doing different things and some probably are doing what their forecasters tell them ‘cause you got to plug something into the model and some are rather less happy about that. And I think one of the things that corporates tend to do is they tend not to build a lot of their profit projections essentially off macro fundamentals the way that Treasury does. And to be fair to Treasury it is sensible to bid their forecasts off macro forecasts because that is what drives so much of the income tax revenue. But for a lot of corporates essentially they build their profit growth off what they can kind of see for the last year or two. And they go straight to well what kind of you know direct drivers do we see happening to our revenue and expenses? And we kind of project those forwards plus a you know bit of stretch target and hey presto, there’s your forecast. So I think because they use that ironically much cruder method most corporates are probably less aggressive than this. So that’s on the corporate.


Now you ask a really great question which is you know we have seen shifts in the macro fundamentals and we’ve seen a long-term reduction in interest rates, we saw a you know a significant shift around the oil crisis, how have modellers dealt with those? To be really honest I don’t know, it’s a great question. It’s a really good question and I think it’s a good way of thinking about this problem is you know when we have had structural shifts in the past, how have they got factored in and how quickly did we factor them in? All I would suggest is you know it’s been in effect seven or eight years now on most of this stuff and – well as you can see particularly on the wages forecast it’s been very clearly not factored in. And I guess what we’re trying to do is wave a few flags and say you know you’ve really got to do a wee bit more than just drop the long run growth forecast by 0.25% here because that you know just doesn’t seem to be big enough relative to the new world we appear to be in. And as I said you know the costs of been wrong about that are not that high whereas the costs of continuing to be wrong as we are clearly very high. But I think you ask a great question and if I had [world] 58:52 enough and time I’d definitely get someone to have a look at it.


K:            Down the front we have – yeah.


Au:         Thank you. Both sides of politics when speaking of balancing the budget focus on reducing expenditure although the Coalition has a greater emphasis on reduction of expenditure than the Labor Party. My understanding is that by Western standards if you leave aside the UK and the US Australian taxation and expenditure are relatively low, the highest levels of taxation and expenditure are probably the Scandinavian countries and I understand that their growth rates and their productivity are in fact much better. So my question is to what extent do you think part of the answer for Australia lies in higher taxation and higher expenditure on services that lead to growth in productivity and so on?


J:             So if you got a budget deficit you really only have two choices, you can either reduce expenditure or you can increase taxes. You’re absolutely right to say there is no correl – or the correlation between size of government and growth rates is pretty weak and the correlation between size of government and budget deficit or surplus is particularly weak. So the claim that you know we’re in deficit because government is too large is just plain wrong. Now that said I think the reality is when you face a substantial budget deficit and you know a long-term structural deficit of 2 to 3% of GDP which appears to be where we are, is a pretty large budget deficit in the overall scheme of things. As I said that’s about 10% of the Commonwealth Government’s revenue.


In that world I don’t realistically think you are going to solve the problem unless you both reduce expenditure and increase taxes. Now why do I say that? I think if you look at the history of governments that have really succeeded in tackling budget deficits, and Alan Stockdale from Victorian Government, the Kennett era, is particularly articulate on this, he talks about the way that when confronted with a really big budget deficit in Victoria the first thing they did was explain they have a problem so you know we’re not doing that at the moment, we’re saying there is no problem in effect. So step one, admit that you have a problem you know bit like Alcoholics Anonymous you know that usually is the place to start.


But then he pointed out that the real politic or the political economy of how this plays is you actually want to both increase taxes and reduce expenditure because when you try and repair budgets someone is losing, either someone’s paying more tax or someone’s getting less services or both and by definition they are going to yell and scream when that happens. And if you can say to them look, everybody is sharing the pain here, literally everyone is either paying more tax or getting less services or both and yes, your particular group, however you want to define it, is also paying more tax or getting less in the way of services and that’s unfortunate and we wish the world were different but if you’re going to repair a budget everyone’s got to share some of the pain.


Now you can see why politically that’s actually very powerful because it gives you a way of pushing back against the special interest groups. If you try and do your budget repair essentially only on the expenditure side as Tony Abbott figured out eventually you can’t run that argument because what happens is that half the people essentially say we’re getting way less services and the other half, they’re not being affected by any of this. How is that fair? And the answer is good question and at least as a matter of politics, I mean forget about the policy, as a matter of politics it’s almost impossible to win that argument. Whereas if you have much more substantial revenue increases across the board it’s much easier to say look, everyone’s sharing the pain here so yes, you’re getting less in the way of health services or whatever it might be but you know that’s the world we’re in.


And now of course the most recent budget we’ve had if anything went too far the other way, it was kind of all revenue increases and very little in the way of expenditure reductions. And so you know I’m not sure that that’s going to go so well either and I think what we do need is budgets that very explicitly do both. Indeed when Alan Stockdale took this to its logical extreme they introduced a poll tax, essentially a poll tax in Victoria, it was essentially a dollar amount per household on every single household in Victoria. Now of course Margaret Thatcher did that and it didn’t go down so well and Alan Stockdale did it and he did it expressly so he could say that every household in Victoria is contributing to budget repair and the day that the budget is actually in surplus as opposed to projected to be in surplus the poll tax will go. And it turned out to be – I mean he’s certainly – the way he describes it is that was a very important part of their success, was that it made it much easier politically to sell the message.


So in answer to your question I think given the size of budget deficit we have net increases in expenditure at least as a percentage of GDP is probably not where I would start from here, I would be trying to reduce expenditure relative to GDP and I would be trying to increase taxes relative to GDP and the reason for that is I have a $38b budget deficit hole. That’s you know 2% of GDP, that’s a very large hole, I am not going to cover $38b without pulling essentially both sides of the ledger. And to put this in context the disability insurance levy that’s been introduced is worth from memory about $4b a year. Now that’s a material chunk. The largest single tax concession that we’ve been talking about, essentially shifting the capital gains tax, negative gearing rules, if you did the kind of full-blown thing that we’ve advocated which is not a mile away from where the ALP’s got, by the time you get to full implementation – it’ll take you a while to get there – it’s about five billion a year. Remember our hole is 38 so it gives you an idea that the sorts of things you are going to have to do to fix this kind of budget deficit are very large and very substantial and that’s why I don’t think it’s going to be a world in which you can net increase expenditure any time soon, you’re going to need to both reduce expenditure and increase taxes to fill a hole of that kind of size.


K:            Anyone else? Oh yes, down the front, I’m sorry.


Au:         Jenny Stewart from UNSW Canberra. John, I have a question about your kind of disciplinary background. If you’re not an economist, and I don’t think you’re really an anthropologist then what exactly are you?


K:            Ooh, existential questions –


J:             Very – so I studied an arts law – a science law degree at the University of Melbourne majoring in music and theatre which is the kind of thing you could do before they invented HECS. And then I went to Oxford and I did a doctorate which was supposedly in law but in fact was in political philosophy and then I went to McKinsey and the twig was well and truly bent economically for three years then I went to ANZ and the twig was even more seriously bent for six years economically and the major thing you can judge from all of this is that from a disciplinary background I have a very, very short attention span.


K:            Or that you’re adaptable.


J:             And I think what it does illustrate is that for many of these policy problems a whole range of backgrounds is very helpful. And if I look at Grattan Institute, not surprisingly we employ more people with economics backgrounds than any other single background but we employ people who are lawyers or lapsed lawyers like myself, we employ people who are scientists, we employ people who’ve done arts degrees and all of those backgrounds are helpful to the problems that we attack. And I think living in that environment in which there’s people with lots of different disciplines, it kind of keeps you honest on problems like this because there’s bound to be someone who you know comes from the back and says look, I just don’t quite understand like why is that a sensible assumption? And then you sit there and think yeah, it’s a very difficult assumption to justify as soon as I have to do it outside of my discipline. So you’re absolutely right, I’m not an anthropologist at all, that’s certainly something I know very little about but I think yeah, trying to bring lots of different ways of looking at these problems is the only way we’ve got a really good chance.


K:            And we’re almost on time and I think I could do one sneaky more if there is one sneaky more in the room. If there’s not that’s fine. Ooh, up the back.


Au:         Thanks for the discussion, Katharine and John. This is a question for Katharine, actually. Considering the fallacy of projections of surpluses how do you break through the budget narrative to tell the real story?


K:            I’m glad John didn’t get the only existential question of the night. How do I break through the budget narrative? Well by trying to tell the truth. I think that’s all I can do, try and ascertain what the facts are and try and tell the truth. And avoid sort of being drawn into the spin cycles that occur prior to the budget and after the budget for that matter. You know do I do that perfectly? Probably not but I do make a concerted effort to do that. And you know I make – I have little budget rituals like for example there’s – in the budget lockup it’s a bit of a tradition for the Treasurer to wander about and hold court, have all sorts of little side [bars] 9:44 about you know what the budget might be about. I tend to avoid those and always have. I don’t do what Laurie Oakes does, Laurie Oakes has a tradition of – Treasurers approach Laurie in sort of magisterial fashion waiting to give the benefits of the wisdom and it’s a funny little ritual which you can watch if you're in the right place in the budget lockup every year because it’s almost like Treasurers have to learn the lesson every year. But Laurie doesn’t even turn around, he just sticks his hand up. Like that. Don’t even talk to me.


I don’t do that because I'm not Laurie Oakes but I do tend to avoid the huddles and try and sort of assess the documents on its merits. At Guardian Australia in the 2014 budget, and this was mainly Lenore Taylor’s judgement, not mine but it was a judgement we workshopped together, because of that habit that we have of trying to stay outside the huddles I think we called that budget right and not every outlet did. Because there’s a sort of tradition in reporting about tough budgets that governments get marked up for tough budget per se regardless of the merit of whether or not there’s broken promises or whether or it’s not it’s distributionally unfair or all of those sorts of things. We took one look at that budget and thought oh my god, like really oh my god. And that was reflected in our coverage and not everybody went that route. So –


J:             Immediately.


K:            Not immediately. So again I’ll end by saying that I’m by no means perfect, I can make lots of mistakes and do every day, often in front of a large journalistic audience and that’s life but trying to tell the truth I think’s a significant motivation. And I think that’s it.


J:             We should finish there. Can I thank you very much on behalf of Grattan Institute?


K:            Oh can I thank you more? Thank you too.


J:             It’s been great, thank you all.


K:            What a fantastic audience you were, thank you.




J:             Thanks too to the National Library, this is part of what we hope will be an ongoing series with Grattan Institute and the National Library, thank you all very much for coming and we look forward to seeing you at the next Grattan event in Canberra, if not downloading our next report from the website. Thank you.


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