ALP in black hole of own making

AT 4.47pm on Thursday, Joe Hockey got a text message from a senior official telling him to keep an eye on the Treasury website.

The opposition Treasury spokesman had no idea what to expect, but the instant a statement by Treasury secretary Martin Parkinson and his finance counterpart David Tune was posted, at 4.53pm, he savoured the taste of vindication.

From the moment the election was called, Labor had based its campaign on the supposed $70 billion black hole in Coalition costings, building a fear of post-election spending cuts and reminding voters of the $12bn errors in Coalition costings that Treasury identified after the 2010 election.

Now the public-service guardians of the national budget were turning the tables, repudiating the use of their names in Labor's attack.

That morning, Hockey had landed in Ballina on the northern NSW coast for a hospital funding announcement to be told that Kevin Rudd had just accused him of committing a "$10bn fraud" on the Australian people.

The Prime Minister, flanked by Chris Bowen and Finance Minister Penny Wong, said advice from Treasury, the Finance Department and the Parliamentary Budget Office had shown there was a $10bn hole in the $30bn worth of savings claimed the previous day by Hockey and opposition finance spokesman Andrew Robb.

Bowen handed out "sensitive" minutes prepared by Treasury and the PBO, which apparently costed several Coalition policies, coming up with much lower figures than those claimed by Hockey and Robb.

Angry at being called fraudulent and perplexed about the status of the documents, Hockey rang Parkinson.

The Treasury secretary was at a workshop of all commonwealth department secretaries, who are preoccupied with preparing incoming government briefs. They had all gathered the previous night for a farewell dinner for former prime minister Julia Gillard.

Parkinson had not seen Rudd's press conference. Hockey demanded to know whether Treasury had been costing Coalition policies? He knew the answer was "no", because the Coalition had not entrusted Treasury with its policy assumptions, getting its policies assessed by the Parliamentary Budget Office, but he wanted Parkinson to know what claims the Labor leadership was making. Hockey felt he got a good hearing.

Parkinson did not raise the matter formally at the workshop but discussed it with his colleagues, including Tune.

The government had form. Last November, The Sydney Morning Herald had published what purported to be a Treasury analysis of Coalition policies on the paid parental leave levy and two business tax policies. Hockey had written to Parkinson to complain and been assured that Treasury did not undertake unsolicited costings of political party policies other than for preparation of incoming government briefs during the caretaker period.

The government had asked it to analyse alternative policies, Parkinson said in the letter, which he made public. Wayne Swan was forced to admit he had leaked it.

Parkinson and Tune decided the matter needed further investigation. They felt their departments were being used to partisan effect, in a manner damaging to their reputation.

On Thursday, Hockey's office received a call from a senior Treasury official asking for copies of the PBO costings of the policies Rudd and Bowen had challenged.

It was made clear this was simply for the purpose of clarifying the Prime Minister's claims and was not for the purpose of the Charter of Budget Honesty.

After considering the matter, the Coalition's campaign headquarters, which is managing the costings issue, complied.

The PBO was also delving into the claims made by Rudd and Bowen. The first concern was to ensure that the Treasury documents they had released had not contradicted any of the work they had done for the Coalition. They soon realised there were quite different assumptions involved.

One of the documents released by Labor, costing the reduction in the public service by 20,000 people, had been prepared by the PBO and was dated April 11. The release had the name of the person requesting the costing blacked out.

Since costing requests are supposed to be confidential, the PBO felt it could not comment, although it knew full well the request had come from Labor.

Parkinson knew that going public with Treasury's concerns would have grave implications for a Labor campaign built around claims of holes in Coalition costings, but he had no real choice.

Australian National University professor John Wanna says the Charter of Budget Honesty formally gives Treasury and the Department of Finance a responsibility for costing government and opposition policies.

"With Rudd spruiking a costing implying it was a Treasury costing of a Coalition policy, Parkinson and Tune had no alternative to coming out publicly to say they had not done it," Wanna says.

This was the view among other departmental heads at the workshop. A line had been crossed.

Parkinson and Tune endeavoured to make their statement firm but neutral. No names were mentioned but they were clear that no conclusions about Coalition policies could be drawn from analysis they had conducted at the government's request before the election was called.

"Different costing assumptions, such as the start date of a policy, take-up assumptions, indexation and the coverage that applies, will inevitably generate different financial outcomes," they wrote.

"At no stage prior to the caretaker period has either department costed opposition policies."

The statement was also seen by PBO director Phil Bowen, who was smarting over the imputation that his office had costed Coalition policies for the government but felt unable to respond because of commitments to confidentiality.

At 5.20pm, Labor backbencher Andrew Leigh, who is responsible for policy costings, went on Sky TV to field questions on the statement from Parkinson and Tune.

"They're just making sure that everybody is aware that these costings weren't done during the caretaker period," Leigh said.

"As the Labor spokesperson on Coalition costings, earlier this year I put in to the PBO for a costing on one Coalition policy: getting rid of 12,000 Canberra public servants.

"They came back and told me that would save a considerably smaller amount than the Coalition have now come back with."

By outing himself, Leigh gave the PBO's Bowen the latitude he needed to distance the organisation from Labor's claims.

"When an individual parliamentarian or a political party chooses to publicly release a PBO costing that has been prepared on a confidential basis for them, it is inappropriate to claim that the PBO has costed the policy of any other parliamentarian or political party," he said. "Unless all of the policy specifications were identical, the financial implications of the policy could vary markedly."

There were no black holes. As Hockey told The Weekend Australian: "This comprehensively undermines everything Kevin Rudd has claimed for the duration of the campaign."

Additional reporting: David Crowe