Following on from the previous post showing Rudd government spending I thought I’d compare the budget forecasts for both revenue and spending from the first Rudd Budget to the Latest MYEFO. Of course it would be even better to compare the last Howard government MYEFO (October 2007) to the latest MYEFO, but the numbers are not entirely comparable. One of the better Rudd government decisions was to include the GST as a federal government tax and outlay in the Budget papers. So the comparison is not ideal, but a lot of the first Rudd budget would consist of what they’d inherited, so I don’t imagine too much difference between the two (although Rudd did suggest that the reckless spending must stop).
We see that the Rudd government was forecasting very strong revenues in its first budget (blue line) – well above the 1970 – 2009 average. Also remember that the Rudd government had ‘matched’ most of the Howard election tax cuts. So in 2008 expected revenue was looking very good. The red line shows the latest MYEFO figures. The so-called ‘collapse in revenue’ is expected to be temporary and, in any event, could be described as a mean reversion to the long-run average. These are the government’s own figures. If they can’t make ends meet while collecting revenue at the long-run average then they are living beyond their means. Spending is too high.
Looking at the first Rudd budget forecasts (blue line) we see a small dip in the first year but after that forecast spending remains fairly stable at just below the long run average. So not too much ‘reckless spending’ was on the chopping board. But look at what has happened. Spending has exploded – this is discretionary spending, i.e. the Rudd government has chosen to spend this money. We have pushed out well above the long run average and unlike revenue this is hardly a mean reversion. As the Wall Street Journal Asia reported last year the Rudd government’s inability to balance a budget is due to their spending choices. The Rudd government is forecasting a rapid decline in spending (as a percentage of GDP) over the next couple of years. This will take a lot more discipline than they have shown todate (mind you, they might try to increase taxation and account for it as a reduction in tax expenditure – that kind of Enronesque accounting sends people to jail in the private sector).
Finally I thought I show the difference between the first budget and the latest MYEFO (notice the graphs ends a year earlier than the previous graphs).
Sure the Rudd government are collecting less revenue than they first expected, but look at the spending. They have ramped up spending faster than revenues have fallen.
(Just a couple of additional points; the graphs don’t go through the origin, I normally prefer that graphs show the origin. The Tax Expenditure figues came out Friday and hopefully I’ll get around to a post on that).
Firstly the ‘long run average is meaningless.
It is the last few years that are comparable.
On the revenue side we can see revenue fell like a rock.
On the Spending side it did not go up until the Government was forced to confront the GFC.
It did so successfully.
At present the vast MAJORITY of economists would have the budget now detracting from growth.
How fast one cuts spending depends on how fast the economy grows.
the Budget assumes growth in Spending about the same as happened in the Hawke years.
I can’t see why the Government cannot deal with that.
If they cannot they quite deservedly will get kicked out.
If the economy is stronger, something that Sinkers poo pooed on budget release, then they will have to cut harder although I suspect that revenue would be a lot stronger.
They also need to bank the revenue surge if it occurs.
Butterfield, Bloomfield & Bishop
1 Feb 10 at 2:40 pm
“Firstly the ‘long run average is meaningless.”
hahahahhahahahahahahahahhaah
So homer is really a closet global warming sceptic?
JC
1 Feb 10 at 2:43 pm
you are comparing apples with oranges as would be expected with someone who confused the numerator with the denominator
Butterfield, Bloomfield & Bishop
1 Feb 10 at 2:52 pm
“How fast one cuts spending depends on how fast the economy grows.
the Budget assumes growth in Spending about the same as happened in the Hawke years.
I can’t see why the Government cannot deal with that.
If they cannot they quite deservedly will get kicked out.”
Good idea.
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