Joe Hockey morphs from fiscal Scrooge into Santa Bank deposit Economics Correspondent Peter Martin explains why Treasurer Joe Hockey has given the Reserve Bank $8.8 billion. PT3M35S http://www.smh.com.au/action/externalEmbeddedPlayer?id=d-2w0w6 620 349 October 23, 2013 - 2:35PM A caterpillar emerging from its cocoon as a butterfly has nothing on the metamorphosis of Joe Hockey. The Hockey of "budget crisis" fame, the government debt warrior, the dry who never met a deficit he didn't hate, has turned into the half-trillion dollar man, spent all the $7.1 billion in policy savings he was trumpeting just five days ago and blown out this year's deficit by some $7 billion beyond Labor's best efforts. And the financial year is young. About face: Joe Hockey is giving the RBA $8.8 billion. Overshadowed by the Commission of Audit announcement and boosting the debt ceiling from $300 billion to the magic half trillion is the former fiscal Scrooge playing Santa Claus down at the Reserve Bank. Will Joe Hockey raid the RBA for a dividend with which to shave the deficit? What a foolish and wrong-headed question I posed here on Monday - Joe is giving the RBA $8.8 billion which, obviously, blows out the deficit by the same amount. That's the deficit that the Coalition laboured long and hard over to find election policies that would take four years to trim it by a total of $7.1 billion. When is a saving not a saving? When you immediately spend it. But the Treasurer might not be quite as politically generous as he at first seems. Hockey has said and will continue to say ad infinitum that this year's deficit all belongs to the Labor Party. No doubt he will say the $8.8 billion gift to the RBA and not taking a dividend this year is repairing damage done by Labor. Like most things said by politicians about their enemies, that's only partly true. Hockey actually is performing like any new broom in a corporation: load up the previous management with all the debt and problems, write everything down that you can, and then claim the subsequent upside. Yes, boosting the RBA's reserve fund to 15 per cent of assets (a level it hasn't seen in more than a decade) blows out this year's "Labor" deficit - but it also means the RBA will be able to pay a nice big dividend next year when it will be Joe Hockey's budget. Neat, eh? The RBA's reserve fund exists to absorb losses when the currency runs against the bank. From a high of 14 per cent of assets in 2004 (when it paid the federal government a $1.3 billion dividend), paying big dividends and the currency's appreciation reduced it to just 2.1 per cent in 2011. It crawled up to 3.8 per cent this year despite Wayne Swan's infamous $500 million dividend raid against the wishes and advice of the governor. Hockey's $8.8 billion payment to the RBA effectively enshrines 15 per cent as the desired prudential level. A weakening currency at some stage over the next few years should see big RBA profits again which can contribute to the bottom line of Hockey budgets. That's the way deck-clearing is supposed to work. As to the super-boost to the debt ceiling, there is merit in Hockey's desire to take the ceiling per se off the political agenda. He should know as he has mercilessly used it against Labor when it sought relatively. But the size of this increase further boosts the likelihood of a major increase in government borrowing to fund new infrastructure projects. There's been no shortage of indications from the government about that. Hockey has been publicly musing about a way of separating debt for capital projects from the rest. Assistant treasurer Arthur Sinodinos in a speech 10 days ago said: "Infrastructure Australia will examine new and innovative ways to engage private sources of funding for infrastructure. The role of infrastructure bonds is already being examined. So the big deficit, big-borrowing Joe Hockey is the Treasurer, not whoever that was pretending to be shadow treasurer up to September 7. The suggestion made back on August 30 - that an Abbott government will never deliver a surplus - has been renewed. But the switch from Scrooge to Santa is welcome. In our present circumstances, it's a far, far better thing that Hockey be accused of gross hypocrisy than Hockey damaging the economy. The game yet to be played is whatever happens to the results of the Commission of Inquiry. When the backbenchers' practical concerns about keeping their jobs meet the Business Council's theories about the role of government, politics will indeed be kept interesting - even without much of an opposition.