The prime minister says the analysis is fraudulent, but the treasurer says it follows the usual practice of ignoring second-round effects

The prime minister, Tony Abbott, has accused the Labor party of “using and abusing” a leading modelling firm by commissioning an analysis of the government’s budget without including so-called “second-round effects” of its policies, but the treasurer, Joe Hockey, has conceded such flow-on impacts were usually “not taken into account” by modellers.



The modelling, from the National Centre for Social and Economic Modelling (Natsem) found low-income families could lose $3,734 in 2015-16, equating to more than $70 a week, under measures in this year’s budget and those still pending from last year, while families on incomes of more than $120,000 were left marginally better off.

At first Labor released only some of the modelling’s findings, and then a longer report – but the government has rejected it out of hand because it did not include the so-called “second-round” or flow-on effects of its policies, for example their intention of getting more Australians into the workforce.

Asked about the modelling during question time, the prime minister said this omission meant the modelling was “a fraudulent misrepresentation” of the government’s budget because returning people to work was “the whole point of the policy measures”.

But shortly afterwards, treasurer Joe Hockey conceded that “as a rule second-round effects are not taken into account”, although they had been included in some modelling, for example, that undertaken by the former Labor government after it introduced its carbon pricing scheme.

And Natsem’s principal research fellow, Ben Phillips, said the analysis had used the government’s own employment and unemployment forecasts. “I imagine the employment impact of their policies would be calculated in those,” he said.

Phillips said excluding second-round effects was a standard convention in budget modelling. “This was done exactly as treasury would have done any budget modelling,” he said.

According to his report, “given the budget forecast of a relatively unchanged jobs market and the potential contractionary impact of measures that reduce disposable incomes of low-income families (who tend to have a high propensity to consume) it is unlikely that the second‐round impacts would improve the budget impacts for low-income families.”

The social services minister, Scott Morrison, attacked the modelling for a different reason, saying Labor had selected the family examples used and pointing out that six of seven examples had not included families with preschool-age children, who would benefit most from the government’s childcare package.

According to the report: “The size of the benefit to families with children from the new child-care package is, in any case, much smaller in magnitude than the cuts proposed in the 2014‐15 budget which will still clearly leave families at the bottom end of the income spectrum significantly worse off in absolute and percentage terms.

“The results clearly demonstrate that low-income families with children are the main family group to be adversely impacted by policy changes since the last election. The budget impact is relatively moderate in 2015‐16 but becomes more significant in the outyears. High-income families and singles and couples without children are shown to be largely unaffected by this budget either in the short or longer term.”