Mr Peter Costello's wasted opportunities.

In an article in this journal a year ago I said: (1)

   "The past three months have seen
   two major political developments--the
   Prime Minister's so-called 'Athens
   declaration' and associated political
   brouhaha, and the federal
   Budget for 2005-06. Common to
   both are the personality and performance
   of the Treasurer, Mr Peter
   Costello."

A year later, the past three months have seen two major political developments--the federal Budget for 2006-07, and the political brouhaha associated with what might be called the "McLachlan declaration". Common to both, once again, are the personality and performance of the Treasurer, Mr Peter Costello.

In what follows, let us first assess Mr Costello's eleventh Budget. In passing, the quality of his budgetary estimating performance will be examined. I shall also note that, whatever may have been the arguments in 1996 for surplus budgeting to deal with the debt legacy of the series of Beazley budgeting "black holes", those arguments no longer apply for a government that now has no net debt. We shall then examine the arguments that the Treasurer has successively advanced in seeking to justify his refusal to provide genuine tax reform. Finally, I shall note some repeated lessons from the "McLachlan declaration" incident regarding the Treasurer's behaviour, and the light they shed on the question, posed here a year ago, of the "Costello for PM" saga.

THE 2006-07 BUDGET OPPORTUNITY

I said last year that "the Budget for 2005-06 is an extraordinary document". Difficult though it is to believe, the Budget for 2006-07, brought down on 9 May last, is even more extraordinary. If last year's Budget was a huge wasted opportunity (as it was), its recent successor was an even greater wasted opportunity. To demonstrate that fact, consider a few salient figures:

* The 2004-05 Budget (May 2004), having provided for personal income tax cuts totalling $14.7 billion over the then four-year forward estimates period (2004-05 to 2007-08), none the less projected underlying cash surpluses totalling $11.9 billion over that period.

* A year later, despite a pre-2004 federal election spending spree ($4.8 billion over the forward estimates period) and further spending promises in the Coalition's election policy program ($9.2 billion over the same period), the 2005-06 Budget, while providing personal income tax cuts totalling $21.7 billion over the then four-year forward estimates period (2005-06 to 2008-09), none the less now projected underlying cash surpluses over that period totalling $34.6 billion.

* A year later again, the 2006-07 Budget, while providing personal income tax cuts totalling $36.7 billion over the four-year forward estimates period (now 2006-07 to 2009-10), none the less projects underlying cash surpluses over that period totalling $44.7 billion. (In fact, because that figure incorporates a piece of budgetary sleight-of-hand by the Treasurer which has taken the earnings of the Future Fund "off-Budget", the surpluses over that period, on a comparable basis, really total $52.9 billion). (2)

Now readers might wonder whether I am being ungenerous. After all, as Mr Costello himself has never ceased to remind us, his last three Budgets have provided personal income tax cuts of $14.7 billion, $21.7 billion and $36.7 billion over the respective four-year forward estimates periods in each case. What, he might say, am I whingeing about?

On the face of it--and leaving aside for the moment that the Treasurer's tax cuts, while welcome enough in themselves, have barely addressed the growing demand for tax reform--that might seem fair enough. But what if we turn the record around the other way? What if, instead of talking about the budgetary revenues devoted to tax cuts over the last three Budgets, we focus instead upon the surpluses still left in the Treasury's coffers, rather than handed back to the people whose money they were in the first place?

On that basis, as noted earlier, Mr Costello's last three Budgets have provided for surpluses (over the respective four-year forward estimates periods) totalling $11.9 billion, $34.6 billion and $44.7 billion (in reality, $52.9 billion). In other words, the money unreturned to taxpayers by the Treasurer in his last three Budgets amounted to 81 per cent, 160 per cent and 144 per cent respectively of the amounts he grudgingly gave back.

In short, in those Budgets Mr Costello could have afforded, even on his own figuring at the time, to have reduced personal income tax (over the respective four-year forward estimates periods) by 181 per cent, 260 per cent, and 244 per cent of the amounts by which he actually did reduce it, while still leaving his Budgets balanced in each case.

MR COSTELLO'S BUDGETARY ESTIMATING RECORD

Before returning to that hypothetical Costello question about my whingeing, note another feature of recent budgetary figuring--namely, the extent to which, year after year, the figures in the Budget documents have subsequently proven to have grossly under-estimated the tax-cutting capacity available.

Who is to blame for this is unclear. It could be the Treasurer personally, by perhaps insisting that the revenue estimates should be ultra-cautiously framed. It could be the Treasury, by perhaps departmentally adopting ultra-conservative assumptions in drawing up the figures presented to its Minister. It could be the Australian Tax Office, whose revenue collection data, which form the basis of the revenue estimates and projections for the years ahead, may have been inadequate. It could be some combination of these. One thing however is clear: the underestimation of the tax-cutting "scope" available in these last three Budgets has been massive.

Take the 2004-05 Budget. It originally estimated underlying cash surpluses in the four-year forward estimates period (2004-05 to 2007-08) totalling $11.9 billion. Twelve months later, in the 2005-06 Budget (and notwithstanding the Government's huge spending spree leading up to the October 2004 federal election, the even greater splurge of spending promises in its election policy programme, and the tax cuts given in the Budget), the underlying cash surpluses in those same four years were now put at $34.6 billion. (3) Very roughly, the original figuring was therefore about $35 billion short of reality.

This gross under-estimation of the budgetary outlook was then repeated in the 2005-06 Budget. In May 2005, that Budget estimated underlying cash surpluses in the four-year forward estimates period (2005-06 to 2008-09) at $34.6 billion. Twelve months later, and despite the further tax cuts now included in the figuring, the underlying cash surpluses for those same four years (including the "off-Budget" earnings of the Future Fund--see the third dot-point paragraph above) were now put at $53.5 billion. (4) Again therefore, very roughly, the original figuring was about $44 billion short of reality.

The 2006-07 Budget, after providing for tax cuts, projected underlying cash surpluses over the four-year forward estimates period (2006-07 to 2009-10) totalling $52.9 billion. It does not necessarily follow that, because the Treasurer's two previous Budgets grossly under-estimated future surpluses, the same will be true in this case. None the less, I shall be surprised if we do not find, next May, that the Treasurer has again sold us short, and that his surpluses for the four-year forward estimates period (huge though they are in any case) have again been significantly understated.

Certainly, I shall be astonished if they prove to have been over-stated. The question is, why does the Government need to frame its Budgets around these huge surpluses, both intended and (to be charitable) unintended?

THE DISAPPEARANCE OF COMMONWEALTH GOVERNMENT NET DEBT

When the Howard Government took office in March 1996, it inherited from the outgoing Labor Prime Minister, Mr Paul Keating, and his weak Minister for Finance, Mr Kim Beazley, not only a $10.3 billion budgetary deficit "black hole" for 1995-96, but also a growing government debt. Commonwealth debt had been piling up over the previous five years as a result of a series of such annual "black holes" (despite the proceeds from sales of such major government assets as Qantas and the Commonwealth Bank). Whereas in 1990-91 Commonwealth Government net debt had totalled only $16.9 billion (4.1 per cent of GDP), by 1995-96 it had soared to $95.8 billion (18.5 per cent of GDP).

Against that background I then applauded the Treasurer's original determination not only to tackle the basic budget deficit problem, but also to rein in the growth of, and even pay down, Commonwealth Government debt. So, to give credit where credit is due, the Howard Government (including Mr Costello personally) deserves full credit for the fact that, during the course of 2005-06, the Commonwealth's net debt shrank to zero. Indeed, it finished that year with net financial assets, as opposed to liabilities, amounting to 0.5 per cent of GDP. Even if we take the view (as I do) that well before then the need to go on paying off Commonwealth debt (at least, at such a rate) had long since disappeared, none the less the achievement has been considerable, and the Government has received less credit for it publicly than might have been its due.

That said, it is now clear that, whatever may have been the case in 1995-96, we certainly no longer need to accumulate surpluses to pay off government debt.

Why, then, is the Government still accumulating these huge Budget surpluses? After all, as the Prime Minister has said more than once--although so far, it seems, with much less conviction than the words might seem to imply--this is our money that we are talking about. It is not even as though these surpluses are the result of rigorously good government housekeeping on the spending side. On the contrary, this Government has been notoriously high-spending since Day One. If we exclude public debt interest payments, which have fallen along with public debt, Commonwealth expenditure in 2004-05 was 24.2 per cent of GDP, which was actually higher than when it first took office in 1995-96 (23.3 per cent). (5)

MR COSTELLO'S TAX REFORM FAILURES

My charge against Mr Costello's 2006-07 Budget is two-fold. First, he has given us back in personal income tax reductions (over the four-year forward estimates period) only 45 per cent of the amount he could have given back while still leaving his underlying cash position in balance. Second, even those tax cuts that he has provided have incorporated little genuine tax reform. In both respects his latest Budget is consistent with its two predecessors.

There are many problems with our personal income tax system. The fundamental one, however, lies in the rate scales, and that is a problem that the Treasurer, during three Budgets when he had major opportunities to do so, has barely addressed.

Thus, prior to the 2004-05 Budget we had a rate scale comprising marginal tax rates of 17/30/42/47 percent, (6) with corresponding taxable income thresholds (where those rates begin to operate) set at $6,000, $21,600, $52,000 and $62,500 respectively. After the 2006-07 Budget we now have a 15/30/40/45 per cent marginal rate scale, with corresponding taxable income thresholds of $6,000, $25,000, $75,000 and $150,000 respectively. So while the taxable income thresholds at which the higher marginal tax rates cut in have been increased significantly, the rates themselves remain virtually unchanged. Yet it is those rates which constitute the chief building blocks of the (legal) tax avoidance industry. In particular, so long as those huge gaps remain between the (now) 40 and 45 per cent rates, on the one hand, and the 30 per cent corporate tax rate, on the other, taxpayers will, understandably, move heaven and earth to avoid paying those higher rates, and the inefficiencies and productivity losses involved will persist.

THE TREASURER'S REASONS/ EXCUSES

Mr Costello has at one time and another put forward five separate excuses for continuing to pile up these huge Budget surpluses, namely:

* Medium-term fiscal management involves maintaining a budget surplus around current levels.

* Budget surpluses are needed to finance the recently created Future Fund.

* Tax cuts would be reckless because our current commodities boom, a major factor in the flood of tax revenue into the Treasury's coffers, will soon end.

* The ageing population foreshadowed in the Treasurer's 2002 Inter-Generational Report (IGR) will soon require higher government spending on health, aged pensions and such.

* The stimulus that genuine tax reform, involving large tax cuts, would impart to an already fairly fully employed economy would force the Reserve Bank to raise interest rates.

Except for the last, none of these reasons has any substance. Let us examine them, briefly, in turn. (7)

(1) Medium-term fiscal management requirements.

When the Howard Government first took office in 1996, it stated a medium-term fiscal strategy "to maintain budget balance, on average, over the course of the economic cycle". That was then an eminently sensible strategy. The Commonwealth budget had then been in continuous deficit for six successive years, despite the economy having begun to move up again immediately after the 1990-91 "recession that we had to have".

After his first (1996-97) Budget, which still showed a small deficit, the Treasurer has budgeted for underlying cash surpluses in every year since (although the effects of the Goods and Services Tax introduction produced a small deficit in 2001-02). All told, and after allowance for those two small deficit years, the budget surpluses during 1996-97 through 2005-06 have totalled $62.2 billion. Meanwhile, the "economic cycle" seems to have gone missing; the economy has now been growing, at varying rates but without serious interruption (the GST-induced hiccup apart), for the past 15 years.

True, we cannot assume that that happy progress will continue unbroken. But what if the cycle were to turn negative in (say) 2007-08, to a degree sufficient to drive the Budget into deficit? I am the last person to appear complacent about deficit-budgeting, but if that were to eventuate, so what? All experience suggests that we would be out of recession again within the following 12-18 months; the Commonwealth would still have no net debt (having now accumulated sizeable net financial assets); and things would go on much as before. In short, circumstances have changed since that medium- term fiscal strategy was first enunciated, so that it is simply no longer appropriate. Given that fact, what is now the point of taxing Australians unnecessarily to maintain more than mere budget balance?

Perhaps because even Mr Costello now privately acknowledges that his originally stated medium-term fiscal strategy has become indefensible, the 2006-07 Budget papers now claim that: (8)

"The Government's medium-term fiscal strategy has a number of supplementary objectives, including: maintaining budget surpluses over the forward estimates period while growth prospects are sound; not increasing the overall tax burden from 1996-97 levels; and improving the Australian Government's net worth position over the medium to longer-term."

None of these "supplementary objectives" makes any more sense than the primary one. The first merely restates the primary strategy in different words. The second (apart from being factually untrue--the overall tax burden today as a percentage of GDP is actually higher than it was in 1996-97; in 2004-05 it was 2.9 percentage points of GDP higher, though it may now be slightly less than that when 2005-06 figures become available) (9) is in no way inconsistent with the need to lower the current level of taxes. The third seems to be nothing more than a re-statement of the fourth of the Treasurer's reasons/excuses listed above.

In short, the medium-term fiscal strategy has been overtaken by events. Rather than attempting to prop it up with so-called "supplementary objectives", it should be scrapped, and replaced by a simple undertaking to keep the budget in balance, subject only to any unforeseen adverse economic development that might take it (temporarily) into deficit.

(2) Need to finance the Future Fund.

The Future Fund episode is an extraordinary saga, meriting a whole article in its own right. Originally a Labor Party proposal--the so-called Inter-Generational Fund--it has now been taken up (and re-named) by Mr Costello as a convenient device for continuing to squirrel away large amounts of taxpayers' money. This is ostensibly on the grounds that the Commonwealth's superannuation funds for its employees have been significantly under-funded in the past and will, by 2020, be some $91 billion short of being able to meet their liabilities.

When the concept was first put forward by the Labor Party, the Secretary to the Treasury, Dr Ken Henry, ridiculed it, saying (rightly) that it would be foolish to adopt a policy of taxing people now to meet financial obligations due much later, when Australians could expect to be significantly richer, on average, than they were at present. On Mr Costello's own IGR projections, for example, Australians in 2020 will on average be 26 per cent richer than we are today, and fully capable of meeting those obligations themselves as they fall due.

Needless to say, I have no objection to setting aside (say) the proceeds of the final sales of the Commonwealth's Telstra shareholding, or the proceeds of its sale of Medibank Private, for such purposes. (10) What I am objecting to is the policy of deliberately keeping taxes higher than they need be on the spurious grounds that underlie the Future Fund concept.

(3) Commodity-boom-induced tax cuts would be reckless.

It is true that the commodities boom will not last forever. From its outset there has been a vigorous debate between those who saw it as just another commodity price cycle fluctuation, which like many such previous ones would soon collapse, and those who argued that this upsurge in commodity prices was indeed different from most of its predecessors. It would, the latter argued, be "stronger for longer", and resemble such eras as the post-War growth period, when the world was being rebuilt after war-time destruction and the scramble for raw materials with which to do so was intense. Now, that school of thought argues, we have the newly emerging economic demands of a rapidly growing China, and those of an almost equally rapidly growing India, pushing up demand for almost all raw materials in a manner likely to outstrip, for some time at least, the capacity of producers to bring new sources of supply into being.

Readers must judge for themselves, but for at least the past two years I have been siding with the "stronger for longer" school. The Treasury, meanwhile, has consistently forecast the early ending of the boom, with prices (and resource company profits) quickly falling back to some long-term average norm. For three years now, at each successive Budget it has had to recast its commodity price (and international terms of trade) forecasting assumptions, as its previous predictions kept on being overtaken by reality. Meanwhile, major mining companies keep on announcing new investments (to come into production two or often more years down the track) that can only be profitable on a "stronger for longer" basis, thus putting their money where that school of thought's mouth is.

There is another aspect to this objection of the Treasurer's. When supply does eventually overhaul ever-increasing demand, commodity prices will not collapse overnight. (11) Nor will the prices of all commodities follow the same course. For example, the price of thermal coal, deposits of which are plentifully available throughout the world and can be developed fairly readily, are most unlikely to follow the same pattern as prices for the hard coking coals most wanted by steelmakers, which are by no means plentiful. While the price of the latter will no doubt also decline in due course, it will do so more slowly (perhaps much more slowly) than the price of the former. In this respect, every commodity is different, and we shall have plenty of warning of developments as they unfold.

In short, the notion that we can't cut taxes now (and haven't been able to do so to any appropriate extent in the last three Budgets) because real national income will one day grow less rapidly than it has been doing recently, is foolish. As I said in that newspaper article referred to earlier, (12) "when the problem finally arises, it can be dealt with--including by reining in our Government's spending profligacy".

(4) Need to provide for our future ageing population.

The 2002 Inter--Generational Report was, so far as it went, a useful document. It suggested that, in the absence of changes in either the underlying assumptions about fertility rates, mortality rates and so on, or assumptions about the rates of growth of government spending in such areas as pharmaceutical benefits, aged care and so on, there would be major budgetary consequences. Unfortunately, however, Mr Costello seems to have drawn from it precisely the wrong conclusions. According to newspaper reports last April, he has told senior business executives attending a Liberal Party conference that "there was a certain inevitability to the idea that taxes would have to go up in the future".

The idea (to the extent that it has any intellectual content whatsoever) seems to be that the Treasurer will go on piling up surpluses in his piggy bank, so that when the day comes, he (or one of his successors) can draw on that piggy bank to help pay for all those government expenditures on our ageing population that he foresees. Among other things, this would seem to imply that the Treasurer envisages that, at that future time, the then government should embark upon a continuous series of budgetary deficits (drawing upon his piggy bank to finance them). How such behaviour would be consistent with anything approximating to a responsible fiscal strategy is beyond me.

Apart from the general proposition that, in my experience, no 40-year projection has ever provided the slightest rational basis for current policy, there is a more specific objection to the Treasurer's lazy conclusion. While present demographics may well imply Australians becoming "older", why does that necessarily mean greater government spending? On the basis of the figuring in the Treasurer's own IGR report, by the years 2010/2020/2030/2040 Australians will be, on average, 9/26/45/68 per cent richer in real (inflation-adjusted) terms. Why will these richer people require even more government welfare? If Mr Costello, who purports to represent a political party devoted to self-help, private enterprise and personal responsibility, really believes such stuff, that is nothing short of alarming--and once again demonstrates why he is unfit to remain as Treasurer, let alone aspire to succeed Mr Howard as Prime Minister.

(5) Tax reform will provoke interest rate increases.

As noted earlier, this is the only one of Mr Costello's arguments that has any intellectual substance. It is true that, other things being equal, a less restrictive fiscal policy (balanced budgets instead of large continuing surpluses) would impart a stimulus to an economy already fairly fully employed. That could mean, depending upon the course of other events, that the Reserve Bank might feel the need to increase short-term interest rates a little. (The level of long-term rates is much more a product of the world savings/ investment nexus, plus our own long-term inflation outlook, and need not necessarily be much affected). Let us assume, then, that a major advance in tax reform would move the Reserve Bank to increase its official cash rate by, say, 0.25 per cent, or even 0.5 percent.

There appears to be an assumption (one firmly held by most of our politicians, in particular) that this would be disastrous: all those voters with housing mortgages would arise in their wrath and march on Canberra. There is, however, another side to that story. For one thing, there are many people (and they tend to be older, and less financially astute) whose savings take the form of bank term deposits or other such "safe" fixed interest instruments. Such people would benefit, not lose, from an upward adjustment in short-term rates.

More generally, surely it is better, in terms of general economic management principles, to have a monetary policy that is balanced, and a fiscal policy that is balanced, than to have (as at present) a fiscal policy that is economically restrictive, and a monetary policy that, as a consequence, can be, and is, over-accommodating. So while it is true that a major tax reform package probably would entail some small rise in short-term interest rates, that is an outcome to be welcomed, not feared, in the cause of best-practice economic management.

So much, then, for Mr Costello's arguments/ excuses for not producing a genuine move towards major personal income tax reform (say, replacement of the present 15/30/40/45 rate scale by--to begin with--a simple 15/30 rate scale, plus a stated intention to move the 30 per cent rate, along with the 30 per cent corporate tax rate, down to 25 per cent over future years). Let us now turn to the other element in the Treasurer's recent performance, the "McLachlan declaration" episode.

THE "MCLACHLAN DECLARATION"

On 9 July, the political world was rocked by a story by Canberra press gallery journalist Glenn Milne. Sydney's Sunday Telegraph carried it on its front page under glaring headlines: "Howard's Broken Promise: Leadership Bombshell". In essence, Milne said that on 5 December, 1994, when Alexander Downer was leading the Opposition and Peter Costello was his deputy, there had been a discussion between Costello and John Howard at which Ian McLachlan, then the Liberal member for Barker, had been present. McLachlan, some days later, had recorded (on a business card) his recollection of that discussion. His note suggested that Howard had "guaranteed" Costello that, if he could again become Leader (in place of Downer, who had clearly failed in that role) and if, subsequently, he were to win the 1996 election, then he would not want more than "about one and a half terms" as Prime Minister before "handing over" to Costello.

The story, as such, was bizarre (and has led to serious questions, beyond the scope of this article, as to Milne's possible motives in writing it). As Howard said when questioned on the matter, discussions about the succession to Downer were still going on well into January 1995, in which case there had clearly been no "deal" a month earlier. As others also pointed out, every poll published at the time showed that by December 1994 Howard already had the votes in the party room to assume the leadership from Downer in any case, and that Costello did not. As the days went by, journalists searching the media files also found instance after instance, over the intervening years, when Costello (as well as Howard) had specifically denied the existence of any such pre-1996 "deal". But above all, what relevance in any case does a discussion between two men occurring almost 12 years earlier have to the totally changed situation today? As they say, then was then and now is now.

In the days that followed, things (for Costello in particular) went from bad to worse. Instead of shrugging his shoulders and repeating his earlier statement that no 1994 "deal" existed, Costello now chose to change his story and confirm McLachlan's "recollection". Next, without specifically calling the Prime Minister a liar, he deliberately (and more than once) made statements to that effect. (13) Before an 11 July Cabinet meeting in Sydney he told assembled journalists that his parents had always told him that "if you told the truth, you couldn't get into trouble". (That provokes the question of why, in earlier statements denying any "deal", he had previously been ignoring his parents' dictum).

Meanwhile, as the days passed, the upsurge of support for John Howard from his parliamentary colleagues, from his party members more generally, from the general public, and even, at the Council of Australian Governments (COAG) meeting on 14 July, from all six Labor premiers, became stronger and stronger. (14) Respected commentators, such as the Herald Sun's Andrew Bolt, (15) scarified Costello's performance both in terms of what it said about his character and what it said about his political judgment. Even journalists normally sympathetic towards Costello--if only because of their hatred of John Howard--found it difficult not to be critical.

CONCLUSION

Writing at the time, immediately following that 11 July Cabinet meeting at which Costello found no support whatsoever from his senior colleagues, I concluded: (16)

   "Recent events have again demonstrated
   that Costello is someone
   who, far from seeing his career as
   an opportunity to serve his country,
   has been, and remains, wholly focused
   on his own personal demands
   to become Prime Minister.

   "He has not been a good Treasurer,
   having simply presided over our
   economic fortunes at a time when
   they have been rosier than I can ever
   remember them.

   "He has produced eleven budgets,
   the last ten of them undistinguished
   by any reforming quality. His 2005-
   06 Budget was widely, and rightly,
   seen as a huge wasted opportunity
   in terms of tax reform. His 2006-
   07 Budget was if anything an even
   greater wasted opportunity.

   "This morning Costello is still the
   Treasurer. It is out of the question
   that he can remain so much longer.
   This boil must be lanced."
   Before this is published, I trust that
   it may have been.

(1.) John Stone, "The Future of Mr Peter Costello", John Stone, National Observer, No.65, Winter 2005.

(2.) See Budget Strategy and Outlook 2006-07, Budget Paper No. 1, footnote (b) to Table 4 of Statement No. 2 (p.2-10): Underlying cash balance "excludes expected Future Fund earnings from 2005-06 onwards". Also see footnote (b) to Table 1 of Statement No. 13, namely: "Underlying cash balance is equal to receipts less payments less expected Future Fund earnings. For the purposes of consistent comparison with years prior to 2005-06, Future Fund earnings should be added back to the underlying cash balance."

(3.) Note that this is the figure for the years 2004-05 to 2007-08. It happens to be the same (on a rounded basis) as that for the years 2005-06 to 2008-09 given in the second of the three earlier dot-point paragraphs, but that is by coincidence.

(4.) This figure (total surpluses for the years 2005-06 to 2008-09) differs of course from the $52.9 billion total for the four-year forward estimates period (2006-07 to 2009-10) given in the third of the three earlier dot-point paragraphs.

(5.) See the Australian Bureau of Statistics web site, www.abs.gov.au, Catalogue No. 5204.0, 2004-05 Time Series. This is the latest year for which these figures are yet available from the ABS.

(6.) In fact, 18.5/31.5/43.5/48.5 per cent after taking into account the 1.5 per cent Medicare levy, which is effectively an addition to the personal income tax rate levied upon the total taxable income.

(7.) These excuses by the Treasurer were noted, and very briefly rebutted, in John Stone, "Take the initiative this time", The Australian, 17 April 2006, calling on the Treasurer not to miss (again) a chance for genuine tax reform in the 2006-07 Budget.

(8.) Budget Strategy and Outlook, 2006-07, Budget Paper No.1, Statement No.1, p.1-5.

(9.) Australian Bureau of Statistics web site, loc. cit.

(10.) I do however question why we need a separate Fund for this purpose. Any amounts to be set aside in this way could simply have been assigned to the Trustees of the Commonwealth's superannuation funds for investment by them in the normal manner.

(11.) I am referring here to the underlying level of prices, not to the wildly inflated levels sometimes resulting from the frenetic speculation of the hedge funds (and to some extent the commodities mutual funds), for example in the weeks leading up to 10-11 May this year. What has been notable about the sharp correction beginning at that time, however, is that the pull-back in prices of most commodities still left them well above where they had begun this calendar year, and that once the speculative chaff had been shaken out, prices stabilised and even (in many cases) began to move back to previous levels.

(12.) John Stone, "Take the initiative this time", loc. cit.

(13.) See, for example, Laura Tingle and John Kerin, "Gloves off as Costello takes on Howard", Australian Financial Review, 11 July 2006.

(14.) See, for example, Adrian Rollins and John Kerin, "Liberal chorus of support for Howard", Australian Financial Review, 13 July, 2006.

(15.) Andrew Bolt, "Peter cries wolf", Herald Sun, 12 July 2006. This was probably the most devastating critique of Mr Costello's performance among the many published at the time.

(16.) John Stone, "Howard then, now, tomorrow," Australian Financial Review, 12 July 2006.