NATIONAL AFFAIRS: by John MorrisseyNews Weekly
Treasurer's fantasy of a budget surplus by 2016/17
, August 17, 2013
“Bad news on jobs, deficit and growth”, was how the Weekend Australian greeted the Rudd Labor government’s economic statement delivered on August 2.
The economic statement was an unusual way for Prime Minister Kevin Rudd to usher in a federal election. But his strategy was to contrast Labor’s supposedly proactive approach with the Abbott-led Coalition’s alleged intention to “cut to the bone”.
The new Treasurer Chris Bowen’s statement, nevertheless, has created a sensation nationwide. Owing to “revenue shortfalls, he has now forecast a budget deficit of $33bn, instead of the $19bn announced by former Treasurer Wayne Swan only 11 weeks ago.
Labor’s growth forecasts have had to be cut from 2.75 per cent to 2.5 per cent, while unemployment is tipped to rise from 5.75 per cent to 6.25 per cent. Deficits are expected to continue for another three years, extending beyond the next government’s term, that is until 2016-17, at which time Bowen envisages a small surplus. However, this heroically optimistic scenario is based on some assumptions about revenue growth which have baffled many business analysts.
To the “savings” in Mr Swan’s May Budget have been added some increases in taxes on cigarettes and beer and the clampdown on the fringe benefits tax (FBT), which has adversely affected car manufacturers, dealers and leasing companies. It now appears that the FBT changes had never been modelled by Treasury, so the sudden downturn in car sales is just another casualty of Rudd’s policy-making on the run.
However, fear not. The “Budget at a Glance” explanatory summary of Treasurer Bowen’s August 2 economic statement assures us that all this is coherent strategy to return the budget to surplus, while supporting jobs and growth and building a smarter and fairer society.
The summary cites the government’s infrastructure spending, and support for industry, small business and hence jobs. Building a smarter society will be underpinned by Labor’s school funding policy, while building a fairer society will be assisted by its plans for DisabilityCare.
A “Key Initiatives” section trumpets past and future investment, such as $3bn for Melbourne Metro (public transport), $9.8bn for education (over six years) and $14.9bn for the disabled (over six years).
How all this is to be funded is anybody’s guess. The government admits our terms of trade are deteriorating (Treasurer Bowen describes the slackening of the resources boom as a phase of economic “transition”).
During 2008-12, Labor failed to take seriously the discrepancy between government revenue and expenditure. Instead, it embarked on the biggest spending spree Australia has ever seen, amassing annual deficits in the vicinity of $40bn. It is little wonder that Swan’s promise of a 2012-13 surplus has become a national joke.
We have been told repeatedly that the Howard Coalition government enjoyed far higher revenue — a blatant falsehood. Treasury figures show that its receipts peaked in 2006-07 at $272bn, which is far below the $330bn Labor collected in 2011-12.
The difference in those respective financial years lies in the spending side of the budget. The Howard government outlaid only $253bn, compared to Labor’s nearly $380bn.
With accumulated sovereign debt now breaking through the $300bn ceiling (not counting an off-budget item in the National Broadband Network, likely to cost double its estimated $37-43bn), Mr Rudd’s reassuring TV message that our debt is negligible compared with other Western countries appears increasingly untenable.
There are many coy references to “savings” in Mr Bowen’s August 2 Budget update, some of which are in fact taxes, as mentioned above. These also include the increase to the Medicare levy to fund DisabilityCare, which is expected to raise $5.5bn by 2017, for a scheme not even scheduled to be up and running fully until 2019.
The spending cuts are many, and their relative merits and drawbacks should have sparked more debate. It is expected that $2.6bn will be saved in tertiary education by converting scholarships into loans, imposing an “efficiency dividend” on funding, and capping deductions for work-related education at $2,000.
By “not proceeding with” an increase to Family Tax Benefit A, and including in it a smaller sum to replace the axed Baby Bonus, the government hopes to save another $4.8bn. Raising the threshold of the Extended Medicare Safety Net is also expected to save $1.7bn. Cuts of $3.4bn to the Clean Energy Future package are reportedly related to the earlier introduction of an emissions trading scheme (ETS).
Along with a clampdown on the FBT for employees, business will also be made to contribute $3.1bn to government savings, with large tax payments made in monthly instalments and changes to research and development tax incentives. The government also expects to recoup $4.2bn from a tightening up of “the corporate tax base”, including the operations of foreign businesses, with their profit-shifting and dividend-washing. Laudable as the latter aim may be, it will be difficult to enforce.
Other savings included in these forward estimates include $10.7bn of unspecified items. Presumably, these would include the woolly “efficiency dividends” imposed on government departments. The proceeds of a tax on bank accounts announced in the same week might also be included in this large and fuzzy quarter of the grand total of $44.16bn promised savings.
Several conclusions are certain, and may be derived largely from the Rudd government’s own projections.
One is that the long-awaited budget surplus becomes more remote every year, and another is that this government is blithely prepared to load more and more debt onto the future — kicking the can down the road, as the Americans say.
Of equal concern is the failure of the Treasury to get it right on revenue forecasts and to curb out-of-control spending.
Whether or not Treasury has become hopelessly politicised, the reluctance of Tony Abbott and Joe Hockey to submit their Coalition policies for costing is amply vindicated.
John Morrissey is a Melbourne writer.