The Budget

As has been written elsewhere (including by Sinclair and Henry Ergas), this year’s Budget included numerous fiddles to reach an apparent surplus. As I noted on 25 April, the subsidies provided by the Government to make the NBN commercially viable should be included in the Budget bottom line, thus ensuring a deficit.

Other fiddles include the bringing forward of expenditure to this financial year (it would be interesting to run an analysis of how many assets the Commonwealth has replaced before the end of their useful life this financial year) and deferring projects. Both are not savings. The only saving from a deferral is the interest cost of the debt that would otherwise be accrued.

Putting all of that aside, the reconciliation tables tell another story.

There are two ways to represent the policy decisions taken by the Government (which is the correct way to examine Wayne Swan’s claim to be running a tight Budget – parameter variables are exogenous): the fiscal balance (based on accrual budgeting) and the underlying cash balance (cash accounting) the latter being the standard measure of the budget bottom line.

A key difference between accrual budgeting and cash budgeting is the treatment of commitments not yet paid, and prepayments.

In cash accounting, a prepayment is accounted in the year which it is paid. In accrual accounting it is accounted in the year for which it is intended (a later year).

Anyhow the policy decisions taken by the Government in this year’s Budget under the two measures are:

$million 2011-12 2012-13 2013-14 2014-15 Total
Revenue (1) 76 2021 3680 4915 10692
Expenses (2) 2777 -903 -253 2424 4045
Expenses (3) 1951 201 773 3095 6020
  1. Table 5, page 3-10 in Budget Statement 3 (also in Budget Statement 6)
  2. Table 5, page 3-10 in Budget Statement 3: underlying cash
  3. Table 2, page 6-4 in Budget Statement 6: accrual
  4. In interpreting: a positive number in expenses reduces the bottom line (ie: it is a net additional spend). A positive number in revenue improves the bottom line: it increases revenue.

If we use table 5, the net impact on the Budget bottom line of the Government’s policy decisions is:

$million 2011-12 2012-13 2013-14 2014-15 Total
Budget bottom line impact -2701 2924 3933 2491 6647
  1. A positive number improves the Budget bottom line; a negative number worsens the Budget bottom line. Another way to view this: a positive number represents a stimulatory budget; a negative a contractionary budget.

And if we use the table on page 6-4 we get the net impact on the Budget bottom line of the Government’s policy decisions as:

$million 2011-12 2012-13 2013-14 2014-15 Total
Budget bottom line impact -1875 1820 2907 1820 4620

 

Whichever method one uses, it is clear that the policy decisions to increase revenue dominate in benefitting the Budget bottom line and hence to achieve a forecast surplus. The accrual accounting method (which is arguably better): in it, the Government has done the opposite of what it claims: it is increasing expenditure in each of the four years. That is, new programs more than offset the savings it claims to achieve by cutting programs (and spending).

If the Government did not increase revenue, it would be an expansionary Budget.

Over the four years, the Government has increased spending by $4 billion (underlying cash) or $6 billion (accrual). This is offset by increased revenue over the four years of $10.7 billion.

Clearly, the Government is relying entirely on the revenue side to reduce its borrowing requirements.

Further, $2.2 billion of the $10.7 billion revenue is from compliance measures. In other words, a magic pudding of the ATO collecting more revenue from the existing law. That’s more than 1/5 of the increased revenue coming from compliance measures.

Wayne Swan: you have not delivered a tight budget. You have simply increased taxes and other revenue.

Since its election in November 2007, the Rudd and Gillard Governments have taken policy decisions which increase revenue by $34.9 billion and which increase Government spending by $132.1 billion. The Government has thus detracted from the Budget bottom line by $97.2 billion.

About J

J has an economics background and is a part-time consultant
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17 Responses to The Budget

  1. Tim

    I think their tax increases are a bit rubbery, too. For example, the revenue projected to be collected from increased super taxes on high income earners – to the extent these people are making concessional contributions to access the 15% tax rate, they’re just going to stop doing that and negatively gear instead. Little if any of that extra tax will be actually collected.

  2. Poor Old Rafe

    Yes that is always the case: gains from tax increases are over-estimated because people take evasive action and on the other side of the ledger the costs of government schemes are always under-estimated because the costs blow out. Not to mention the deadweight costs and the distortion of incentives.

  3. Poor Old Rafe

    The business community is blowing up, a bit late fellas, remember when you were all cosy in bed with Kevin Rudd? Especially Heather Sellout. Where were you when all this lunacy was just getting started?

  4. Rabz

    The Government has thus detracted from the Budget bottom line by $97.2 billion.

    Sheer unadulterated economic genius.

    Oh and what do we have to show for it again?

  5. blogstrop

    Much is being made by the media and government pollies of the piece of rubbery logic that says there’s no difference between the schoolkids bribe and the Howard/Costello baby bonus handout.
    There are two important differences. Firstly, the baby bonus was offered by a government with surplus funds in the bank, no national debt, and no carbon tax inspired negative polling to immunise against. Secondly, it addressed one of the most critical things a nation has to confront – demographics. With too low a birth rate you end up like Europe or Japan: below replacement birthrates and eventually there’s nobody left to carry on supporting the nation and generate wealth and taxes. Christopher Pyne made it to point one today, but point two remains to be added into coalition responses.

  6. Poor Old Rafe

    There has to be a better way. Look at the way the money was spent.

  7. Small Business Ownner

    Memo to the Treasurer and Prime Minister from a small business in the Real world

    We used to be four full time employees, now we are two and yes, we are incorporated.

    The loss carry-back system doesn’t help us. If we don’t make a profit, we go out of business. We don’t have the option of running a deficit.

    The $6,500 immediate write-off of asset purchases doesn’t help us. Things are tight and we’re not buying stuff.

    If Labor were to submit a bill to the house unconnected to any other legislation for a decrease in the company tax I think the coalition would back it in a flash.

  8. Biota

    Is the schoolkids money a stimulus package by stealth?

  9. blogstrop

    Paul Kelly needs to read this (plus what Sinc, Henry and others have said about the amount of fudging and debt swept under the rug) and have another think about what he just wrote in The Australian.

  10. Winston Smith

    Yes Biota.
    Get ready for a Gobstopper and Winfield Blue Recovery.

  11. Helen Armstrong

    With too low a birth rate

    Aren’t the government addressing this via boat people and family reunion?

  12. H B Bear

    Is the schoolkids money a stimulus package by stealth?

    Yeah – without the stealth. Gary Johns (a reminder of an earlier time when the ALP once had some credibility) fingers the payment in The Australian – couldn’t give the money away as a retrospective rebate so it has to be an upfront “bonus”.

  13. Skuter

    Rafe, I agree that the business community is coming incredibly late to the party, however, I think a couple of comments should be made here. First, I think the lows to which this government would stoop have been underestimated by pretty much everyone, save the good folk here at the cat. Second, business thought they could reason with these arseholes, and if not them, then the bureaucracy at least. This hasn’t happened. Third, I think businesses have, up until now, been genuinely scared by the government. If you were an executive or a business lobbyist and you thought these pricks were going to be around for a while, survival mode kicks in.
    Not making excuses for the business community, I’m just trying to explain their reluctance to speak up…

  14. Biota

    Skuter

    First, I think the lows to which this government would stoop have been underestimated by pretty much everyone

    I agree, and I’m starting to think that it is a long way back from this deep gutter that we are now in. I’m sure we don’t see a fraction of the filth that is actually going on.

  15. Rafe

    Fair enough Skuter. Rudd made threats that were not even veiled. That is about as low as it gets.

  16. JC

    Third, I think businesses have, up until now, been genuinely scared by the government.

    Yes, that’s very true. I twas only last year when people came forward complaining about Shane Wand having bullied and threatened them in private.

    I thought there were a few times when it was concerning to criticize these pricks as they would come after you like thugs.

  17. Pingback: Budget pictorial at Catallaxy Files

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