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.
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.