NO.020

An illustration of how unprepared for Government the Labor Party is,

was shown today by the sheer ignorance of Shadow Treasurer, Simon Crean,

in relation to Commonwealth accounts.

The Commonwealth accounts do not include the proceeds of financial asset

sales, such as Telstra, in the bottom line. They have not included the

proceeds of financial asset sales in the bottom line since the defeat

of the Labor Government in March 1996.

One of the first decisions made by the Government, and backed by the

Charter of Budget Honesty, was to exclude these asset sales from the Budget

bottom line.

If the proceeds of the privatisation of Telstra were, say, $60 billion,

the Budget bottom line, instead of showing a starting point of $3.2 billion

underlying cash surplus in 2001 (as shown in the Mid-year Review) would

show a cash surplus of $63.2 billion. This is the way the Labor Party

accounted. The Labor Party then spent the whole of the proceeds in each

year of privatisation, still ran a deficit, and borrowed to fund the difference

as well.

The Government uses the proceeds of asset sales to write-down debt. Consequently,

in Table F3, page 169, of the Mid-year Review, the proceeds are factored

into the reduction in the Commonwealth debt position.

The apparent belief of the Labor Party that the proceeds of an asset

sale can be included in the Budget bottom line may indicate the way in

which they are approaching their policy promises. So far, the Labor Party

has claimed that they can rollback the GST, obtain additional revenue

and guarantee it to the States, enter into increased spending promises,

and produce bigger surpluses. This may indicate that they intend to treat

asset sales as recurrent revenue and return to the pre-March 1996 practice.

Even worse is the possibility that Labor, after five years in Opposition

has not yet understood how the Commonwealth accounts treat asset sales.

If so, this may explain why they still fail to understand the dimension

of how bad fiscal policy was during the five years leading up to 1996.

Canberra

26 March 2001