Now that it’s budget time, it is important to properly understand how our federal finances became so shambolic.

Those who have followed The Marcus Review from its humble beginnings (thank you all) will be familiar with this material – which is well worth re-reading might I add. For those who haven’t yet read it: grab a coffee, sit down and see the scandalous waste for yourself.

If you’re one of the 50% of people in our society who is a net tax payer, then never forget this: it’s your money that they’re spending and they don’t spend it anywhere near well enough that you should be donating extra (may you rest in peace Kerry).

What Did We Get for Our $400 Billion Loan? (Part 1)

In 2006, the federal government had $45 billion in net assets (4% of GDP). Today, it has a cataclysmic $400 billion debt on the books, which is budgeted to grow to $480 billion within the next four years.

A $400 billion loan of itself is not a problem if there is value to show for it. However, the problem is that it’s impossible to find any such value. Ask where the money went and the best that even the most ardent Labor supporter can give you is a combination of blank stares, some vague references to ‘steering us through the GFC’ and the (incomplete) NBN. 

Let’s try and do a better job of solving the mystery of where and how our money was urinated away.

If you want to play along at home, try and guess which item was and still is the biggest contributor to our debt. Yes, welfare is always the biggest spending item in the budget, but which new or increased spending item since 2006-07 has been the biggest? I promise you that the irony will be delicious.

Overall picture

While you’re thinking, let’s have an overall look at the slow moving train wreck that has unfolded since 2006-07:

The first two bars show Howard’s last years, with spending well within revenue. The next six belong to Rudd and Gillard (plenty more on that to come). The last two show the deadlocked waste of a parliament we currently have and a Liberal government that has so far been without the ability or the means to fix what Rudd and Gillard left. Politics just keeps lowering the bar to the point where Satan is probably getting worried.

Ok, let’s get to work. We start with number 18 on the list:

18 – Fuel Watch/Grocery Choice – $(tens of millions)

Fuel Watch was a pre-election thought bubble which was abandoned before it started. Grocery Choice suffered a similar fate when Rudd realised it could not be implemented.

Tens of millions of wasted dollars later, our groceries and fuel still look and cost the same as they were always going to. Enough said.

17 – Indonesian beef export ban – $0.1 billion (at least)

In 2011, the ABC’s Four Corners program showed some cattle in Indonesian abattoirs (alleged to have been imported from Australia) getting horribly mistreated. Labor’s knee-jerk response was to immediately ban all cattle imports to Indonesia – grinding a $318 million per year industry to a halt in the process.

Over $30 million was spent on ‘assistance packages‘ to compensate farmers who either lost or were put out of business. For good measure, a class action was also launched against the Federal Government in 2014:

Australia’s largest cattle company, Australian Agricultural Company, has already put its damages from the live export ban at more than $50 million.

16 – Green Loans and Green Start Schemes – $0.2 billion

Under this scheme, residents received a free household assessment for energy and water-saving measures. These assessments were then ‘checked’ by the government before allowing the resident to apply for an interest free $10,000 loan to pay for any of the recommended changes to the home. How could this possibly fail? Oh well, who needs $200 million anyway.

NB: the ‘Green Start’ program, intended as a replacement, was also a complete failure and ditched.

15 – Australia Network – $0.2 billion

If you travel overseas in the Asia-Pacific region and stay in hotels with cable TV, then this project ensures that there will be a dedicated Australian channel full of the garbage you were trying to get away from in going on holiday. In typical Labor fashion, Stephen ‘get some underpants on your head’ Conroy dispensed with proper tendering process and appointed the ABC to operate the network, even though the independent tender board had recommended Sky News:

In a report released this morning, Auditor-General Ian McPhee confirmed the government had ignored the “unanimous professional judgement” of the tender evaluation board to award the $223 million contract to a consortium led by Sky News, ahead of the ABC.

He found “perceptions, at least, of a conflict of interest“, arising from Communications Minister Stephen Conroy’s role as the tender approver while also having portfolio responsibility for the ABC.

The Australian reported today that government has been forced to hand over millions in compensation to Sky News after bungling the tender process and handing the contract to the ABC.

14 – Cash for clunkers – $0.4 billion

This scheme was based on giving owners of pre-1995 cars $2,000 to buy a new car – as long as the new car had a 6/10 ‘greenhouse rating’. Funnily, the ‘greenhouse approved’ cars included some four-wheel drives and pretty much half of all available vehicles on the market. As for whether the scheme achieved any ‘green’ aims, this comment on the similarly failed English experience sums it up best:

George Monbiot analysed the cost of carbon reduction under the proposed scheme. He observed “you’d get almost as much value for money by reclassifying £10 notes as biomass and burning them in power stations“.

Who would have thought that encouraging people to buy new cars wouldn’t be efficient at helping the environment?

13 – Solar Homes program – $1 billion

Rudd intended to spend $150 million subsidising solar panels on people’s roofs – a scheme replicated by various state governments to the tune of about $14 billion in subsidies nationally. In the end, $1 billion was spent at the federal level before Labor realised what was going on and cancelled the scheme. When all was said and done, it was found that the cost of solar schemes such as this far exceeded the benefits.

More money down the toilet.

12 – General health administration – $2 billion

In 2006-07, annual spending on general health administration was around $0.75 billion. Today, the figure is $3.1 billion, which represents an average annual increase of a bit over 17% – and over 400% in total. To give you some perspective, total health spending increased by about 173% over the same period ($69.4 billion in 2015-16 vs $40 billion in 2006-07).

Of all the places to increase spending by 17% annually, having more public servants pushing pens would not have made it to any intelligent person’s short-list.

Sadly, this item is only the entrée to Labor’s main course of health waste.

11 – Roof batts program – $2.9 billion

Garrett and Rudd ironically managed to get people’s beds, batts and our budget burning. The $2.9 billion overall cost included $2.45 billion to start the harebrained scheme plus another $424 million to fix the catastrophe after four installers died.

Coming up in Part 2, the top 10 begins…

What Did We Get for Our $400 Billion Loan? (Part 2)

The hunt for where our money went continues here in Part 2:

10 – Flood relief package – $6 billion

I bet you forgot about this one and had no idea it actually cost this much. Remember when the Queensland government thought it would be smart to be the only state without natural disaster insurance and then the Queensland floods happened – and then when Anna Bligh cried? I would have cried too if I had been so utterly negligent.

It’s interesting that people have been jailed for stealing bread – yet when a State Premier is grossly negligent in protecting the State’s interests to the tune of needing $6 billion in ‘disaster relief’, absolutely nothing happens.

9 – Clean energy finance – $10 billion

Gillard set up a system where the government would provide finance to anyone that wanted to generate ‘clean’ energy. There was just one catch – a real bank must have refused to finance the project. In other words, all you had to do was show that your project commercially stunk like these ones.

Sounds like something we all would spend $10 billion on.

8 – ‘Irregular’ maritime arrivals – $10 billion

Rudd and Gillard thought it would be wise to dismantle a functional border protection scheme, to the point of having to process around 50,000 boat arrivals at a cost of around $200,000 each. That’s just the processing cost and does not include ongoing welfare and integration costs.

Tens of thousands still remain unprocessed and at large in the community. In April 2015, the figure was around 30,000.

Meanwhile, real refugees who really needed our help were left to continue wasting away in camps. Brilliant.

7 – Health ‘reform’ – $17 billion

Remember when Rudd said he was going to ‘take over’ our hospitals? As with all things that Rudd had great ideas on, it went about as well as space suit flatulence.

The federal government paying health handouts to the states and territories is nothing new. In Howard’s last year, ‘health care agreements’ (as they were then called) amounted to around $8.8 billion. In 2015-16, the amount is scheduled to be $16.4 billion.

Instead of increasing state government assistance in line with revenue or inflation (i.e. increasing at 3-4% per annum), Rudd and Gillard tried to ‘take over’ and increased spending by 7% per annum – a difference of $17.1 billion.

Of itself, there’s nothing wrong with spending more money on health. Indeed, it should be the number one priority. However, throwing this kind of money to achieve the exact same outcome as before – albeit with a 400%+ and $2 billion more expensive administration – is unforgivable.

6 – Education ‘revolution’ – $20 billion

You cannot walk past a local primary school without seeing the impact of the $16 billion ‘building the education revolution’ debacle. If a school didn’t have a school hall but desperately needed more classrooms or education materials, it had to build a school hall (using union approved labour). If a school already had a school hall, it had to build another school hall (using union approved labour). If a school already had two school halls, it had to build another school hall (using union approved labour). And so forth. What would a school’s principal and management committee have known about what their school really needed anyway?

Also included was the ‘digital education revolution’ which cost $2 billion. What you think of this policy depends on your thoughts about spending $2 billion on trying giving a laptop to every year 9-12 child in high school (I say ‘trying’ for obvious reasons).

There was also a $1.3 billion ‘national school pride’ program thrown in for good measure. I can only imagine the extra pride you must have been feeling in our schools since this initiative.

I’m no education expert, so I’m going to break with my usual practice of ignoring academics for a brief moment and give a couple of them the last word:

• Former dean of education at Melbourne University, Brian Caldwell:

“Since 2007, schools around the country are quite recognisably the same institutions,” he tells Inquirer. “We have not improved the nation’s scores in terms of NAPLAN and we have gone backwards in terms of PISA (OECD tests). There has not been an education revolution. There is no question about it.” 

“I drive past too many schools where new classrooms look too much like the old classrooms – factory-style, reflecting mass-production technology – that will be obsolete within a very short time and probably run-down,” he says.

• University of South Australia emeritus professor Alan Reid:

“It was good to see that money was provided to schools, but it wasn’t a revolution because there was no significant change in the way we think about teaching and learning in this century,” he says.

“BER was a good example of the lack of deep thinking about the kind of education system we want. It was simply providing schools a narrow range of facilities without any talk of learning in the 21st century. I think if it was genuinely part of the education revolution there would have been more thinking about the connection between the building and teaching.”

Coming up in Part 3 – the top 5…

What Did We Get for Our $400 Billion Loan? (Part 3)

The hunt for where our money went continues here in Part 3:

5 – Transport – $21 billion

Given the annual volatility, this one needs a table to show the full picture. The first number is total transport spending, while the figure in brackets is the portion spent on roads:

• 2006-07 – $3.3 billion ($2.1b roads)
• 2007-08 – $4.1 billion ($2.8b roads)
• 2008-09 – $6.9 billion ($5.5b roads)
• 2009-10 – $6.6 billion ($4.9b roads)
• 2010-11 – $4.6 billion ($3.0b roads)
• 2011-12 – $9.1 billion ($6.3b roads)
• 2012-13 – $5.0 billion ($2.5b roads)
• 2013-14 – $8.4 billion ($5.3b roads)
• 2014-15 – $6.5 billion ($4.2b roads)
• 2015-16 – $8.6 billion ($5.9b roads)

If the annual transport budget had been increased in line with revenue (i.e. 4%), then total transport spending would have been $38.5 billion from 2007-08 to 2015-16. Instead, $59.8 billion will be spent.

Relatively speaking, this extra spending is defensible in the sense that there is hard substance to show for it (pun intended) and jobs were created along the way. While increasing this area of spending by an average of 13-14% each year is questionable, it’s definitely a ‘lesser evil’ when it comes to Labor’s spending.

Of course, the extent to which we got our money’s worth is a separate question – and not one my continued sanity wishes to explore.

PS: Labor loves cultivating an image of being environmentally friendly, which makes its decision to spend 67% of the transport budget on roads (i.e. pretty much the same as Howard did) quite interesting.

4 – Increased welfare – $20 billion-$40 billion

This one depends on how tough you want to be. In 2006-07, welfare spending was $92 billion. For 2015/16, it’s budgeted to be $154 billion.

Within this, among other things, are our current annual welfare bills for:

• ‘families with children’ – $38.1 billion;

• assistance to the aged – $60.1 billion; and

• assistance to people with disabilities – $29.5 billion.

To illustrate just some of the welfare money being wasted on people with no need for it, one need look no further than:

• School Kids Bonus – which started in 2012-13 and which costs $2 billion annually. Apparently, if you have children in school and earn up to $100,000, you’re special and need a bonus; and

• Family Tax Benefits A and B – where, for example, if your family earns ‘only’ $150,000, you need a handout. To be fair, this ‘middle class welfare’ was a legacy of John Howard’s and probably his biggest mistake as this spending has become firmly entrenched. At least Howard had the money to pay for it at the time.

All up, welfare spending has increased by 6% each year since 2006-07.

Given that annual revenue growth was about 4%, you could be generous and say that welfare spending was 2% too high each year over this period (i.e. welfare should only have increased in line with government revenue). In this case, the total wasted spending has been $20 billion.

Alternatively, you could be ‘tough but fair’ and say that welfare should only have increased by the inflation rate (around 2%-3%). In this case, the wasted spending has been $30 billion – $40 billion.

You could also be firmer and say that welfare spending should have been cut given that it amounts to 35.5% of total government spending.

It’s up to you.

Meanwhile, many elderly pensioners still cannot afford to run any heating or air-conditioning. Perhaps they should be having kids?

3 – GFC stimulus package – $42 billion

The infamous ‘stimulus package’ with its $900 cheque mail out program was Rudd’s panicked response to the GFC. In fairness, some stimulus might have been defensible in the circumstances. However, a real leader would have taken time to do actual thinking and then taken a calm and measured approach to the situation (and would have probably realised that nothing needed to be done in Australia). Rudd, on the other hand, needed several changes of underwear and invited everyone – including the dead – to buy a new TV.

2 – NBN – $56 billion

Trying to list all of Labor’s blunders on this project is like trying to individually bag every grain of sand on Bondi Beach.

The insane cost for this white elephant is after the Liberals mercifully put some brakes on the project (going from fibre to the premises to fibre to the node). Just imagine how much more it would be if we were still hopelessly pressing on with fibre to EVERY premises under Labor.

Something tells me that this version of Rudd and Conroy’s ‘napkin’ cost benefit analysis wasn’t far off the reality. And yes, they were trying to tell us at the time that full fibre to the premises would ‘only’ cost $37 billion.

Of course, a real cost benefit analysis probably would have concluded that this kind of project is best left to the private sector which isn’t exactly miles away from rendering the NBN redundant. Just imagine if the private sector was allowed to handle this project or properly compete during this time. Instead we were lumped with a government created monopoly where there was not even the slightest whiff of natural market failure. Marx would be proud.

Let’s just say that the less than 25% take-up rate for the fastest speeds offered by NBN says it all.

To any person with intelligence, it all boils down to a question of cost and priorities – and the NBN certainly doesn’t fall into the ‘we need $100 billion right here right now’ category (which is what fibre to the premises would probably ended up costing). I have no doubt that one day in the not too distant future, we will all require ‘Lamborghini internet’ for modern life in ways we cannot possibly imagine today. However, today is not that day and we simply don’t have the $100 billion for it in any event.

Why couldn’t we have built the fibre skeleton across the nation first and then seen how things were going, rather than starting with fibre to the premises in Tasmania?

1 – Interest on loans – $90.4 billion (rising to well over $150 billion) 

I promised irony and here it is. The biggest contributor to our debt is the interest on it. It’s not even close and it’s still contributing at a rate of $15.6 billion per year and rising. You are not seeing things. Here’s our sordid interest bill history:

• 2007-08 – $3.5 billion
• 2008-09 – $3.9 billion
• 2009-10 – $6.3 billion
• 2010-11 – $9.3 billion
• 2011-12 – $11.4 billion
• 2012-13 – $12.5 billion
• 2013-14 – $13.4 billion
• 2014-15 – $14.5 billion
• 2015-16 – $15.6 billion

NB: interest on debt also amounted to $3.5 billion in 2006-07 based on government bonds on issue. However, there was no net debt in 2006 despite this due to returns the government was receiving elsewhere.

Over the next four years, our debt is projected to grow by another $80 billion (that’s the next four years of projected budget deficits). The total interest payments we’ll be making over this time will be around $70 billion – $80 billion. That’s right, the extra amount we’ll be borrowing is just enough to pay the interest on the loan. Feels great doesn’t it?

The second most expensive item on the list (NBN) is not even close and isn’t going to have $15-20 billion added to the pile every year for the next four years – unless we vote Bill Shorten in.

When the interest bill is the biggest contributor to your debt by miles, then you know something has gone disastrously wrong.

Last word

If you’ve been keeping count, then you’ll have noticed that about $320 billion of our money has been tracked down. That still leaves a lot left over to account for our $400 billion loan.

About $50 billion can be accounted for by Rudd and Gillard’s refusal to accept the reality of the government’s declining revenue in 2008-09 and 2009-10 and their attempt to keep our ‘lifestyle intact’. They defied all logic and kept increasing spending in too many areas of the economy that were never going to provide any return on the ‘investment’:

When normal people are confronted with less income, they cut spending and balance the books until things improve. Sometimes that might mean making hard decision like selling the house or a car or moving the children into public schools. As for Rudd and Gillard…

Imagine a wage earner, John, employed in the same job throughout the last 20 years. For a period in 2003 to 2007 every year his employer gave him a sizeable bonus. He was grateful but in his bones knew it wouldn’t last.

The bonuses did stop and John was told that his income would rise by around five per cent each year over the years to come. That’s the basis for his financial plans. Now, very late, John has been told he won’t get those promised increases for the next few years – but his income will get back up after that to where he was promised it would be.

What is John’s rational reaction? To respond to this temporary loss of income by selling his home and car, dropping his private health insurance, replacing every second evening meal with two-minute noodles. Of course not. A rational response would be to make some responsible savings, to engage in some moderate borrowing, to get through to the time of higher income with his family and lifestyle intact and then to use the higher income to pay off the extra borrowing undertaken in the lean years.

…To return to John, you would not expect him to stop funding his son’s top quality schooling or his daughter’s university studies.

You can easily dissect this guff in dozens of places. However, this comment says it best:

What would be the response of the bank manager when John says he has no savings, is living above his means and wants to borrow money to keep his ‘lifestyle intact’?

As for the remaining tens of billions, it’s a case of death by a thousand cuts and almost impossible to sensibly track down. Even if I could, the list would be hundreds of items long and impossible to digest. I can only say that it’s all in there somewhere:

I think it’s time for a stiff drink.