Fact check: Tony Abbott's claim Labor spent like 'drunken sailors' in office is spin

Updated

The Abbott Government has staked its credentials for economic management partly on its claim to keep a tighter rein on public spending than the former Labor government.

While out selling the Coalition's second budget, Prime Minister Tony Abbott said his Government had spending under control.

The claim: Prime Minister Tony Abbott says growth in spending is lower under the Coalition than it was under Labor.

Prime Minister Tony Abbott says growth in spending is lower under the Coalition than it was under Labor. The verdict: Experts say Labor's one-off stimulus spending to combat the GFC distorts Mr Abbott's comparison, and opposition in the Senate to proposed spending cuts could change the estimates for the Abbott Government. What's more, measured as a proportion of gross domestic product, spending under the Abbott Government has been higher than in all but one of Labor's years in government. Mr Abbott's claim is spin.

"The former government were spending like drunken sailors," Mr Abbott told the Nine Network's Today program.

"They were spending at a rate of 3.6 per cent a year. We are spending at a rate of 1.5 per cent per year."

He also told the ABC's AM program that under the Labor government spending "grew at 3.6 per cent real every year".

"Under this Government it's growing at 1.5 per cent real. That's a very, very significant change," Mr Abbott said.

ABC Fact Check asked three experienced economists to examine Mr Abbott's comparison with the previous government.

The experts are Warren Hogan, chief economist of ANZ Bank; Saul Eslake, chief economist at Bank of America Merrill Lynch; and Alan Oster, chief economist at the National Australia Bank.

Where do the numbers come from?

Fact Check asked Mr Abbott's office for the source of his claim. No reply was received.

Figures on real growth in government spending are published in Budget Paper No. 1 in a section on historical Australian government data.

It shows revenue and spending going back 45 years, and projected ahead for the next three financial years. The data is adjusted for inflation to produce what economists call "real" numbers.

For growth in spending, the Consumer Price Index is used to make the adjustment.

The table below shows real growth in spending for each year since 2007-08.

Real growth in payments Financial year Per cent Financial year Per cent 2007-08 3.8 2013-14 7.8 2008-09 12.7 2014-15 (estimate) 0.4 2009-10 4.2 2015-16 (estimate) 1.1 2010-11 -0.4 2016-17 (estimate) 1.0 2011-12 4.8 2017-18 (projection) 1.9 2012-13 -3.2 2018-19 (projection) 3.2 Source: Budget Paper No. 1, Statement 10, Table 1

Labor was in power for almost six years under Prime Ministers Kevin Rudd and Julia Gillard, from November 2007 to September 2013.

Two financial years in that period, 2007-08 and 2013-14, were "handover years".

The Coalition government under John Howard handed over to the Rudd Labor Government during the first, and Labor handed over to the Abbott Government during the second.

In his spending comparison, Mr Abbott gave Labor's 3.6 per cent and the Coalition's 1.5 per cent as growth figures "a year" and, in one of his statements on Labor, "every year".

The budget papers show such spending growth rates did not happen every year under either government, but at different rates each financial year.

Fact Check also arrived at a 3.6 per cent figure for Labor's spending growth by calculating the average of the spending growth figures over five financial years under Labor: 2008-09 to 2012-13.

These were all the full financial years under Labor's administration.

If this is the basis for Mr Abbott's figure, it is possible that he has decided to exclude the two "handover" years from his calculation.

Mr Abbott's 1.5 per cent spending growth for the Coalition can be arrived at by adding the spending growth rates in Mr Hockey's two budgets so far: 0.4 per cent in the 2014-15 budget and 1.1 per cent in the second budget he delivered recently.

But it is also possible that Mr Abbott has calculated the Coalition figure as an average, starting with its first full financial year in office, 2014-15, and extending to 2018-19, when its spending plans are due to be completed under the forward estimates.

Making this calculation for the five years period, the Coalition's spending increase also comes out at an average of 1.5 per cent.

Measuring Labor's term

The economists contacted by Fact Check pointed out that the 2007-08 budget was the last Howard government budget, brought down six months before Labor won the November 2007 election. They agreed there was a case for making 2008-09 the first year for calculating Labor's record.

"There are lots of nuances involved," Mr Eslake said. "What period do you define as being the Labor government?"

Mr Oster argued a realistic calculation for Labor spending growth would be to take its six years in government from 2008-09 to 2013-14.

In that case, Labor's average spending growth would be 4.3 per cent, higher than Mr Abbott's figure.

But the economists also argued that other considerations come into play in judging Labor's record.

The big issue with the Abbott Government is that they haven't really cut back on spending at all. Alan Oster, chief economist, NAB

The budget papers show real spending growth of 7.8 per cent for 2013-14.

Labor delivered that "handover" year's budget in May 2013 before it lost power to the Coalition the following September.

Mr Eslake argues the spending growth was not all Labor's work.

He said two spending initiatives soon after the Abbott government came to power contributed to that figure: a grant of $8.8 billion to the Reserve Bank of Australia, and money paid to the then Victorian government for the now-abandoned East-West freeway link in Melbourne.

Mr Hockey announced the Government would "make a one-off $8.8 billion grant to strengthen the financial position of the Reserve Bank" in October 2013, and it was included in the Mid-Year Economic and Fiscal Outlook he released in December 2013.

The budget he handed down in May 2014 showed $1.66 billion paid to Victoria in 2013-14, which included "additional funding for East West Link (Victoria)".

The Victorian Government's October 2014 Economic and Financial Update referred to "the Commonwealth Government's decision to prepay $1 billion of its contribution to the East West Link late in 2013-14".

Mr Eslake says of this Abbott government spending: "I'd take it out of the 2013-14 figures and put it into 2014-15 [Mr Hockey's first budget] where it belongs."

GFC stimulus

An even bigger impact on Labor's record came from the 12.7 per cent rise in real spending in its 2008-09 budget.

This was due largely to the Rudd government's decision to pump money into the economy in a bid to mitigate the impact on Australia of the global financial crisis.

Sorry, this video has expired Video: Watch John Barron present the facts (ABC News)

This stimulus has since been credited with helping to save Australia from the recession that hit most comparable countries.

The three economists agreed that the 2008-09 rise in stimulus spending changed the overall calculation, and deserved to be taken into account in judging Labor's record.

Mr Oster said: "You can't really compare different times. If you had the second biggest global recession in the past 100 years, and did nothing to increase real spending to stimulate the economy, you'd be very close to being negligent. So that makes life a lot trickier."

Mr Hogan said Labor's spending record was "overstated" due to the fiscal stimulus.

Mr Eslake defended the 2008-09 stimulus spending "because you can never properly calibrate what you need to do in such circumstances".

"You're bound to make mistakes. So it's better to do too much initially, because if you have to do more later the credibility of your efforts will suffer," he said.

In two of the four years after the GFC stimulus spending, Labor cut spending so that real growth was actually negative: -0.4 per cent in 2010-11 and -3.2 per cent in 2012-13.

Actual v estimated

Unlike the spending figures before the Coalition came to power, the budget papers describe the spending increases shown for Mr Hockey's two budgets so far as estimates.

The figure for the next financial year, 2016-17, is also an estimate, and those for the following two years are listed as "projections".

As recent fiscal history has shown, such forward projections can change due to unpredictable political events and unforeseen economic developments.

The economists argued that this should be taken into account in assessing Mr Abbott's figures.

The Senate has still not passed controversial savings in health and education spending from the 2014-15 budget.

Mr Hogan argues these spending cuts "could blow the figures if they're not passed".

Accounting for economic growth

Others have drawn attention to how Mr Abbott's description of real spending growth should be compared with another measure the budget papers use, spending as a percentage of gross domestic product.

In a letter to the Australian Financial Review on May 18 Des Moore, a former deputy secretary of the Treasury and a champion of free market economics, supported "the Abbott Government's correct complaint that Labor left spending at a high level".

Mr Moore added: "However, spending under the Abbott government is now estimated at 25.9 per cent of GDP, higher than in the last years of Labor, and 2.8 percentage points of GDP higher (about $40 billion-$50 billion) than when the Howard government lost office in 2007-08."

A proportion of GDP

The budget papers show that, measured as a percentage of GDP, spending under the two budget years of the Abbott government - both 25.9 per cent - was exceeded by Labor in only one year: 26 per cent in 2009-10, the year following the GFC spending.

Payments as a proportion of GDP Year Per cent Year Per cent 2007-08 23.1 2013-14 25.7 2008-09 25.1 2014-15 (estimate) 25.9 2009-10 26.0 2015-16 (estimate) 25.9 2010-11 24.6 2016-17 (estimate) 25.5 2011-12 24.9 2017-18 (projection) 25.3 2012-13 24.1 2018-19 (projection) 25.3 Source: Budget Paper No. 1, Statement 10, Table 1

In all other Labor years, spending as a proportion of GDP was lower than it has been under the Abbott Government.

The economists pointed out that the GDP measure could be affected by the size of the economy at any particular time, such as higher commodity prices that prevailed under the Howard government than now.

They agreed that neither measure of how to judge spending – growth in real terms, which Mr Abbott used, or as a proportion of GDP under Mr Moore's analysis – was superior to the other. "What's chosen will depend on the person being asked," Mr Eslake said.

The bottom line

While Mr Hogan argued that "budget figures can be easily manipulated", he said "this one doesn't seem to be too far off".

He said Mr Abbott's comparison should be treated in the context of Labor's GFC stimulus spending, in which it "successfully utilised fiscal policy in a countercyclical way".

Mr Eslake agreed the comparison involved "nuances" in how it should be measured.

Mr Oster said: "Factually, I suspect Mr Abbott is right [in the figures he cited]." But, he added, the one-off GFC spending "associated with the pain of the great recession" probably should not be part of the comparison.

"The big issue with the Abbott Government is that they haven't really cut back on spending at all," Mr Oster said.

"Both sides of politics have increased spending measured by GDP, or maintained it at the level of the GFC year. Going forward from there, there's not really a lot of slowdown."

The verdict

Some economists argue Labor's one-off stimulus spending in 2008-09 to combat the global financial crisis distorts Mr Abbott's comparison, and opposition in the Senate to proposed spending cuts could change the estimates for the Abbott Government.

What's more, measured as a proportion of gross domestic product, spending under the Abbott Government has been higher than in all but one of Labor's years in government.

Mr Abbott's claim is spin.

Sources

Topics: economic-trends, business-economics-and-finance, liberals, abbott-tony, budget, australia

First posted