MYEFO: kicking the can down the road

I’m part of an expert panel responding to the MYEFO over at The Conversation.

To my mind the most important information in the MYEFO is intable 3.4 (on page 29). This is the table that provides a reconciliation between the numbers we saw in the Pre-election Economic and Fiscal Outlook and the state of the books now.

MYEFO Table 3.4

Since the election the underlying cash balance (the deficit) has deteriorated from A$30 billion to some A$47 billion. Table 3.4 explains that A$17 billion difference. Broadly speaking there are two sources of variation – policy decisions taken by the Abbott government and so-called parameter variations.

The bulk of the variation is explained by spending decisions taken by the Abbott government – just over A$10 billion net. Of that $10 billion, A$8.8 billion is a transfer to the RBA. The remaining variation (some A$6.6 billion) is due to changes in forecasts of the economy over the budget period.

Here things become very interesting. Looking over the period 2013-14 to 2016-17 the government is revising revenue estimates down, but not so much spending estimates. This is consistent with slower growth in the economy, but it does also mean that the government are yet to reveal their actual strategy to balance the budget. To be fair, they are probably waiting for the Audit Commission to report and for the 2014 budget before revealing their strategy. This is a reasonable approach to adopt.

It does, however, raise expectations going into the 2014 budget process.

Okay – so the Abbott government wants to have the last Swan budget play out in its entirety. All good. But this does raise the stakes next May. Joe Hockey has to perform – and perform more convincingly than what we’ve seen so far.

Andrew Leigh explains the problem the government now faces:

Mr Hockey today is going to attempt to argue that he has discovered ‘spiders in the cupboards’, and pretend that he is showing the state of the books at the time he became Treasurer. Unfortunately for Mr Hockey, that particular trick has been made impossible, thanks to the fiscal equivalent of Mortein: the Charter of Budget Honesty.

Created by Peter Costello after the 1996 election, the Charter does something very simple: it requires the Secretaries of Treasury and Finance to prepare a Pre-Election Fiscal and Economic Outlook (PEFO). That document sets out the nation’s public finances at the time of the election. It ensures, as Mr Costello put it at the time ‘that the Australian people know the situation before an election begins and so that elections can be conducted on the basis of the facts and not on the basis of deceit, as governments in the past have sought to do.’

As Andrew Leigh argues, the PEFO is the benchmark. The figures are in table 3.4. The other point that Leigh makes and, whatever you think about Andrew, it is 100 per cent true:

It’s your economy now, Joe. Time to step up to the mark.

May 2014 is crunch time.

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51 Responses to MYEFO: kicking the can down the road

  1. Infidel Tiger

    It’s your economy now, Joe. Time to step up to the mark.

    How does this brainiac square that away with his refusal to let Fat Joe pass any legislation?

  2. Token

    Okay – so the Abbott government wants to have the last Swan budget play out in its entirety. All good. But this does raise the stakes next May. Joe Hockey has to perform – and perform more convincingly than what we’ve seen so far.

    In breaking news, politician uses politics to provide cover until more information is available.

    News at 11.

  3. steve

    I just want to hear one thing from Shorten – ” OK Australia, we fucked up, I’m sorry”

  4. Token

    Mr Hockey today is going to attempt to argue that he has discovered ‘spiders in the cupboards’, and pretend that he is showing the state of the books at the time he became Treasurer.

    Why did you reproduce the Liars Party troll spinning and projecting?

    Of course there will be more spiders, why would Hockey & the Libs “own” those?

  5. Andrew

    Good to see that we are being encouraged to listen to Andrew Leigh, someone who was strongly involved in the shocking budgetary management of the Labor Government. If it is Joe’s time to step up, then it is Andrew’s time to get out of the way.

  6. steve

    All spiders are fucking socialists

  7. Sinclair Davidson

    If it is Joe’s time to step up, then it is Andrew’s time to get out of the way.

    Indeed – Andrew Leigh is out of the way. He is in opposition. Quite rightly the electorate threw the bums out.

  8. crocodile

    How does this brainiac square that away with his refusal to let Fat Joe pass any legislation?

    Probably in much the same way as Tony acted while in opposition.

  9. steve

    Sinc, with due respect, they are not out of the way. They are blaming everything on Abbott. Abbott is not defending himself. End result, the polls show Labor ahead. The average IQ of the Australian public is way less than I had hoped.

  10. Sinclair Davidson

    They are blaming everything on Abbott.

    Yep. That’s their job.

    Abbott is not defending himself.

    Yes. Well. He needs to get off his bum.

    End result, the polls show Labor ahead.

    Early days yet. But the Abbott government does need to get rolling.

  11. Rohan

    The bulk of the variation is explained by spending decisions taken by the Abbott government – just over A$10 billion net. Of that $10 billion, A$8.8 billion is a transfer to the RBA.

    Sinc, have you been advising Paul Murray? He’s just made the very same point but rounded things up to $11 billion.

  12. Gab

    It’s your economy now, Joe. Time to step up to the mark.

    Yes that’s true. Labor have left us with an absolute mess which the LNP government now has to fix. Labor got us into debt, the Libs have to get us out of debt. It’s always the same. Blaming Abbott/Hockey for Labor’s profligate ways is dishonest and absurd.

    Perhaps Sinclair could explain what Hockey could have done better? I’m keen to know.

  13. Tel

    http://catallaxyfiles.com/2013/05/13/deficit-forecast/comment-page-1/#comment-837660

    So back in May I was putting my bet on $25 billion, and I was told by JC that QE in Australia just ain’t happening.

    Then a big further down I pointed out $8 billion in Commonwealth securities turned up on the RBA balance sheet. It just occurred to me that Hockey might have got the government to buy back those securities (effectively reversing out the QE from before). Of course they will need to sell the surplus securities again on the open market… but that would be the whole point… to have a proper market price again.

    Well, that helps me get a grip on the world.

  14. Tel

    The remaining variation (some A$6.6 billion) is due to changes in forecasts of the economy over the budget period.

    Ahh that one is easy, the Barnaby-is-right guy called that one virtually instantly. All forecasts during the Labor government were wrong, and they were always strongly optimistic about growth.

    http://barnabyisright.com/tag/forecasting/

    I don’t claim any personal credit on that one (other than the ability to read of course).

  15. stackja

    Sinclair Davidson
    #1114730, posted on December 17, 2013 at 9:18 pm

    They are blaming everything on Abbott.

    Yep. That’s their job.

    ABC?

    Abbott is not defending himself.

    ALP messed up and TA has to defend the ALP mess?

    Yes. Well. He needs to get off his bum.

    Let us wait and see.

    End result, the polls show Labor ahead.

    So ALP gets praise for mess up?

    Early days yet. But the Abbott government does need to get rolling.

    The Senate is the problem.

  16. candy

    Early days yet. But the Abbott government does need to get rolling.

    Absolutely. They must be positive in their communication via the media, to get their message to the public in a clear and understandable way. The government appears to have not much coherence and no objectives or plans for Australia, but just reacting to any given situation. People need to know a simple outline of what to expect in the future.

    Mr Abbott is leaving a big blank there. It’s all been somewhat lacking, hence the polls.

  17. Sinclair Davidson

    Sinc, have you been advising Paul Murray?

    No – but he is obviously very sensible.

  18. steve

    Murray seems to be a reasonable conservative on many issues. How does he get a gig on TV?

  19. Token

    Murray seems to be a reasonable conservative on many issues. How does he get a gig on TV?

    He fanatically supports gay marriage and intrusions by government agencies in our lives , and in the past week was demanding the government reinstate protection on a range of industries because our trading partners don’t have open economies.

    He’s one type of conservative, but he is on our side at least.

  20. Token

    They are blaming everything on Abbott.

    Yep. That’s their job.

    As far as the left is concerned, they are getting revenge for the ETS. They tactically ignore Workchoices and a string of other policies the insipid soppy wet Liberals let through because that is the lefty way, they don’t give ground without gaining something in return.

    I wish more people on our side realised this is politics, not a competition to see who can be the most “fair minded”.

  21. Noddy

    > Of that $10 billion, A$8.8 billion is a transfer to the RBA.<

    Why does 'taxpayers' money have to be transferred to the RBA?
    It is a BANK for goodness sake and is backed by the entire assets of the Nation!
    It is a capitalist trick aided and abetted by a socialist cabal.

  22. Infidel Tiger

    He fanatically supports gay marriage and intrusions by government agencies in our lives , and in the past week was demanding the government reinstate protection on a range of industries because our trading partners don’t have open economies.

    He’s one type of conservative, but he is on our side at least.

    Last night he was demanding a ban on all new grog shops in NSW. He’s a very modern conservative.

  23. stackja

    Last night he was demanding a ban on all new grog shops in NSW. He’s a very modern conservative.

    Too many grog shops for silly people to get grog and do stupid things when drunk.

  24. Andrew

    So big deal. Decisions by A666 (mostly the reinstatement of Shorten’s stolen Gonski money) added $1bn pa underlying to a $50bn deficit. Yawn. Kevni told us to expect $70bn of cutscutscuts so where’s the problem?

  25. Andrew of Randwick

    Sinclair, because you are an economist you think the most important information is showing parameter change effects, some policies effects, and other things on the balance.
    .
    Because I am a business man, to my mind the most important information is
    .
    Receipts….Budget……PEFO……MYEFO
    ……………..14 May…..13 Aug….17 Dec……change from Budget
    2013 …….. 350 …….. 350 …….. 350 …….. 0
    2014 …….. 376 …….. 369 …….. 365 …….. -11
    2015 …….. 401 …….. 390 …….. 383 …….. -18
    2016 …….. 429 …….. 423 …….. 409 …….. -20
    2017 …….. 454 …….. 450 …….. 433 …….. -21
    .
    So the Revenue predictions have been set. Now is the time to ‘cut your suit to fit the cloth’. It really is that simple. You either believe you live within your means , or you do not. Now is not the time to be ‘half-pregnant’.
    .
    P.S. Of course that does not conform to the political plan, i.e. hold down expenses growth (1-2%) and hope the increase in GDP eventually gets us out of trouble.

  26. Angus Black

    I may be really dumb, but I don’t see how the transfer of $8.8B to the a Reserve Bank can be considered “spending”. It just seems to me to be book entry.

    What am I missing?

    Serious Q on my part – I’d like to get a straight answer.

  27. Sinclair Davidson

    Andrew – yes, sure. But they haven’t cut their spending to suit the revenue expectations. To be fair that is coming in the May budget. Or is it?

    Angus – it is money that comes out of the budget and goes into the RBA balance sheet. They can get it back at any time – so is it spending? Not really. Should it turn up in the budget? Yes.

  28. Andrew of Randwick

    Sinc. Last night we had a bit of discussion about using the $100B in the Future Fund.
    Any thoughts?

  29. Sinclair Davidson

    Using it for what?

  30. Andrew of Randwick

    Yes I know it is the unfunded commonwealth public servants superannuation liabilities fund – but could it be drawn down now as another source of revenue over four years (to stop debt increasing) and rebuilt when the budget get better later?
    Also in four years the stabilised debt of $500B or so will be less of a percent of the budget, thus less of a drag.
    Can’t see the point of a mortgage getting bigger when you have a term deposit sitting over there to cover future liabilities. (Some Cat readers suggested the liability could be reneged upon but that would cause riots)
    I know I am contradicting myself about cutting suits to cloth – but would it be a good thing in ‘economic terms’

  31. Sinclair Davidson

    Will post on this tomorrow.

  32. .

    Pay off the effing debt or pay out Comm Super/pensions as an opt out is a good idea.

    Then we can permamently cut taxes.

    Sinc

    What can you tell me about the literature about SWFs?

    Is selling off a heap of real assets (land) to fund a bank account and earn interest to pay for public spending worth it?

    If there was 1 trillion AUD of land alone that could be sold (a reasonable estimate) – excluding mining rights, sea lanes, air lanes, sea beds, then at 4% it would earn enough to run defence, the courts and police.

  33. Sinclair Davidson

    . – there is an excellent paper in the 2014 autumn issue of Policy that will address those sorts of issues.

  34. All spiders are fucking socialists

    Does that include rock spiders? I suspect it does with the Liars party, along with the Greens, being the parties of choice for deviants of all varieties.

  35. HK_Brother

    Suggested new ALP slogan:
    => Intergenerational Debt…We’re experts at it!

  36. JohnA

    The bulk of the variation is explained by spending decisions taken by the Abbott government – just over A$10 billion net. Of that $10 billion, A$8.8 billion is a transfer to the RBA. The remaining variation (some A$6.6 billion) is due to changes in forecasts of the economy over the budget period.

    Err, typo, conflation of gross with net, or a basic problem with arithmetic?

  37. Sinclair Davidson

    No typo. The gross figure is $11.9b which is offset by a revenue gain of $1.6b netting out at about $10b.

  38. Rabz

    … pretend that he is showing the state of the books at the time he became Treasurer.

    I consider it worse than absolutely fucking infuriating that a charlatan like my local ‘member’, an MP in the worst government in this country’s history, has the unmitigated gall to be sneering like this.

    The ‘state of the books’ at the time Hockey became treasurer remain an imponderable – the Goose’s ridiculous, criminal accounting tricks and other monumental labor dishonesty and incompetence has seen to that.

    Seriously, the hide of that staggeringly stupid, insufferable, smarmy wrongologist narcissist, Leigh.

    :x

  39. Noddy

    >Is selling off a heap of real assets (land) to fund a bank account and earn interest to pay for public spending worth it?
    If there was 1 trillion AUD of land alone that could be sold (a reasonable estimate) – excluding mining rights, sea lanes, air lanes, sea beds, then at 4% it would earn enough to run defence, the courts and police.<

    Is this a version of 'Debt for Equity' swaps or how to painlessly transfer your assets (country) to the international banking cabal?

  40. .

    international banking cabal

    Find a thug/S&M man like how Scorpio does so in Dirty Harry and have this stupidity bitchslapped right out of you.

  41. Jazza

    Hands up if you believe that Smokin Joe should have shown us how he will cut spending and decrease the budget bottom line, when the Commission of Audit is still under way?

    Would you then have the effrontery– or is that leftyism– to condemn the money spent on the Cof A and spend typing time pulling apart Smokin Joe’ funding cuts decisions?

    Yep, pure leftyism–go for it if it floats your boat–I’ll wait for the C of A input and the May budget to make my decisions about how Smokin Joe is going, thanks

  42. Makka

    After 6 years of waste, pillaging, ineptitude and sheer stupidity from what is clearly our worst Govt in living memory , it is high time Abbott, Hockey and Co disclosed in full detail to the Australian people how Labor has wrecked our economy for many years to come. Probably permanently.

    I am not talking about an economic statement or speech. I mean a fully detailed and audited document that details the extent these traitorous scum have damaged our future. Just the facts of this 6 years of destruction. Frankly, Australia economically and our Govt finances are fked. For good. Long before there is any kind of restoration to sound Govt finances another Leftslime Govt will be voted in by the thick Aussie electorate and these ex- Union parasites will set about where they left off.

    They have succeeded where Japan and Soviet Russia have failed. The Left has ruined us. Traitors, every last stinking one of them.

  43. .

    Makka

    All you need to do is cut spending, eliminate inefficient taxes and sell off some assets.

    What I’m worried about is that no one mentions the States. The Commonwealth indemnifies their debt – QLD had 90bn of debt under Bligh.

  44. Makka

    Dot,

    “All you need to do is cut spending, eliminate inefficient taxes and sell off some assets.”

    I think the situation is a lot worse than that, but I hope you are right.

    There is recurring spending and massive entitlements the LNP has committed to. To do the type of financial restructuring required to bring the Budget into some semblance of control would send Australia into a recession, particularly now as the resources investment boom unwinds . That won’t be allowed, the LNP will not commit political suicide for an ideal no matter how correct.

    That is why Hockey is signalling a decade of deficits and Debt for decades ahead ie the never never. He intends to keep expenditures at these high levels , while he hopes over time the economy grows itself out of the deficit/Debt hole Labor has landed us in. Hope and prayers.

    Everything I am seeing, hearing and reading tells me our economy and Govt finances have tipped over. We are now on a long slide towards some kind of Socialist European outcome where debt, deficits and financial crises await. Australians do not have the stomache to face the restructuring we need to avoid that.

    This is indeed a major turning point in our history. This disaster given to us by Labor should be fully and carefully documented for the future so that we all know and recognise what has happened to us.

  45. .

    There is recurring spending and massive entitlements the LNP has committed to. To do the type of financial restructuring required to bring the Budget into some semblance of control would send Australia into a recession, particularly now as the resources investment boom unwinds . That won’t be allowed, the LNP will not commit political suicide for an ideal no matter how correct.

    No.

    The exact opposite would happen.

    What the Government spends on is often unproductive. How can stopping spending thus reduce output? Spending nothing and merely consoldiating debt would be better, and have a more positive impact on GDP.

    You’re assuming we need massive tax hikes to pay for previous largesse. I’m advocating the opposite.

    If you want to grow the economy, cut really bad taxes, unproductive spending and reduce the debt servicing as soon as you can.

    Forget any Keynesian theory you have been taught as it relies on policies which empircially never work.

  46. Andrew

    Andrew – yes, sure. But they haven’t cut their spending to suit the revenue expectations. To be fair that is coming in the May budget. Or is it?

    I was assuming a mini budget now for low hanging fruit that didn’t need thought, and then May includes cutscutscuts from the Audit. Surprised it’s taking so long. They really wanted to get a final reading on the Swan fraud – call it $40bn starting point when we were listed to be 12 months into surpluses. Early cutscutscuts would have eaten into that message. Poorly handled though given the state of emergency.

  47. Makka

    “You’re assuming we need massive tax hikes to pay for previous largesse. I’m advocating the opposite.”

    No.

    I’m assuming this Govt has not got the stones to do what is needed in cutting back it’s absurd spending. So I am agreeing with you, but I don’t believe it will happen. What I believe will is what I have described.

    “If you want to grow the economy, cut really bad taxes, unproductive spending and reduce the debt servicing as soon as you can.”

    I agree 100%. Better yet, never incur the Debt in the forst place. Won’t happen though.

    “Forget any Keynesian theory you have been taught as it relies on policies which empircially never work.”

    Don’t worry. I don’t believe in that rubbish, never have. But you will not find anyone in the current LNP (save maybe Robb and handful of others) with the courage to make the decisions we both agree that Govt should. Then what? The outlook, IMO, is not good at all. The conditions in fact are present for a series of can kicking Govts that march us towards an economic basket case because they are now unable to politically address this significant disaster in our public finances. Time will tell.

  48. Uber

    I wish commentators would be more careful with their wording. It is not Hockey’s ‘economy’ – that belongs to business and consumers. It is Hockey’s fiscal balance sheet.

  49. .

    I’m assuming this Govt has not got the stones to do what is needed in cutting back it’s absurd spending. So I am agreeing with you, but I don’t believe it will happen. What I believe will is what I have described.

    Sorry I misread you that makes perfect sense.

  50. LABCR-TV

    How much money could be saved in the Australian economy if we got rid of the state upper houses? We generally don’t know who they are, except that they represent more of the same old parties. Not accountable to any electorate. Seems like a complete waste of money to me.

    The Feds could appoint a minister for state governments, to oversee all state govts. This minister could ensure that states act responsibly in judicial, financial, social matters, acting like an appeals body.
    Look at what has recently happened in NSW with crook Fartcher and o’Barrell, and before that Obeed and old mcdonald and his farm. People have complained loudly and tirelessly over their actions and hidden agendas, including A Jones. Far too many crooks in all state govts, feds need to keep them responsible. Too many Australian politicians are congenitally corrupt, and a vote every 4 years is totally inadequate to deal with corruption.

  51. .

    How much money could be saved in the Australian economy if we got rid of the state upper houses?

    Imagine how much could be wasted!

    The Feds could appoint a minister for state governments, to oversee all state govts. This minister could ensure that states act responsibly in judicial, financial, social matters, acting like an appeals body.

    Should be the other way around.

    People have complained loudly and tirelessly over their actions and hidden agendas, including A Jones.

    Jones is on the books of big ethanol.

    Too many Australian politicians are congenitally corrupt, and a vote every 4 years is totally inadequate to deal with corruption.

    So you could have CIR for bad laws or to recall bad politicians, sortition for Upper Houses and more local control but lessen the size of Government overall.

    Libertarianism is the solution.

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