Spending is the problem

Following Cut & Paste this morning I thought I’d re-graph some data using the latest data from the MYEFO:

A spending crisis? It’s the revenue, stupid. David Marr on ABC Insiders yesterday:

NOW they’ve got to get back the revenue stream and, politically, it’s ­really tough.

Host Fran Kelly jumps in, in furious agreement:

EVERYONE was thinking once we were through the global financial ­crisis it would come back and it has not come back.

Fairfax’s Phil Coorey interrupts with his dash of woe:

IT’S not going to …

I’ve done these graphs before, but to remind ourselves – I have graphed Receipts and Payments as a percentage of GDP from 1970-71 through to 2016-17. I have calculated the average values of these two variables over the same time period and graphed those too. Data are from the latest MYEFO.

MYEFO 2013 1

The red line is payments as a percentage of GDP and the broken red line is the average payments as a percentage of GDP. The blue line is receipts as a percentage of GDP and the broken blue line is the average receipts as a percentage of GDP. As we can see since 1970-71 Australia has had, on average, a budget deficit. What I did next was to zoom into the last few years looking at the end of the Howard-Costello era and the last government.

MYEFO 2013 2

Receipts as a percentage of GDP are forecast to be at (about) the long-term average this financial year and then exceed that average. Payments as a percentage of GDP, on the other hand, remain well above the long-term average. So as we’ve been arguing some some time – spending is the problem, not revenue.

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25 Responses to Spending is the problem

  1. .

    Notice how receipts kept falling well after the stimulus.

    Well, duh. Keynesian policy is bunk.

    It is based on poor arithmetic, theory pulled out of his arse with no grounding (his education in economics was one subject for two semesters) and has been empirically disproved, and cannot work in an open economy.

    If spending was held constant and we abolished payroll tax and instead of a cash handout abolished excise tax, we would have ridden through the crisis much easier – monetary policy pulled us through through international adjustments and since WorkChoices was still in effect, firms chose to cut hours, bonuses and conditions.

    Thank your whatever god you pray to that the Fair Work Act wasn’t in effect through the worst of the downturn. There would have been mass unemployment not seen since 1990 or 1982.

  2. Ant

    Nice graphs.

    They appear to show that under successive Labor governments, spending and revenue may as well be chalk and cheese.

    In a normal person’s mind one doesn’t spend what one doesn’t have, or at least one spends what one can afford to spend.

    I’m pretty sure these dickheads don’t manage their personal finances the way they “managed” the national economy.

  3. .

    Also remember we had a 20 bn or so surplus at the time to suck up some losses or funding of tax cuts, and that the fiscal stimulus raised the FX rate which screwed the efforts of the RBA to accomodate – Swan effectively chose to stop trading with China which was undergoing their own silly 250 bn railway stimulus, he also made us less attractive to invest in and made lumber and other agricultural products unattractive.

    Any savings required to pay off a small deficit could have come from across the board efficiency savings in the next year or two.

    Also, if this path was taken, WE WOULD HAVE NO DEBT PROBLEM RIGHT NOW, and private borrowing rates could be lower.

    We suffered under the stimulus, and are still paying for it for years to come.

  4. H B Bear

    Mincing Marr talking to Fran “I’m an activist” Kelly about economics should be on the comedy channel. Was Phabulous Phil wearing his thinking cap?

  5. Andrew

    Sad to see how much Gough Whitlam screwed Australia with his massive expansion in spending from ~18% GDP up to ~24% of GDP within 3 years of Government. Shame!!!

  6. .

    What’s more upsetting is that we’ve never looked like reversing that mistake.

  7. lem

    Lab-Lib. All the same. Say anything to get in and do the opposite.

    So Joe, while the bad brain chemicals are flowing about being accused by Fairfax of being for sale, how about you DROP the levy, PUT of the thought bubble spending until 2080, and CUT THE CREDIT CARD up.

    You know you’ll feel better.

  8. Natural Instinct

    Why do economists think GDP is the correct denominator?
    For example
    – Why does spending for the old age pension go up with GDP?
    – Why do unemployment benefits go up with GDP?
    – Why does spending on education, health, etc etc vary with GDP?
    It is this simplistic “macro” analysis (with no logical driver) that hides the true story of real spending increases. Other business do more with less every year. Hi ho budgets are due this week for FY14/15.
    Use nominal dollars and you will see that the government is a business expanding at 7% per year or doubling every 10 years.
    That is the problem.

  9. stackja

    So the real problem is ALP voters. And how are these ALP voters to be stopped from being allowed to keep receiving so much? My parents voted ALP in the 1940s but did not expect much in return.
    While today ALP voters expect an ever-increasing expenditure using ever-increasing taxation from the supposed rich.

  10. calli

    I’m pretty sure these dickheads don’t manage their personal finances the way they “managed” the national economy.

    Of course they don’t. They latch onto the taxpayer teat even harder to draw out as much as they can in a limited time…then invest in bricks and mortar and other running capitalist dog stuff. The national economy is a sideshow to the self enrichment main event.

  11. Andrew

    Can anyone name another country where the FY14 spending is as high as the stimulus peak FY11? Looks like the “temporary” “emergency” wasteathon where Rudd admittedly threw process to the wind to “get money into the economy” became a permanent, structural feature under Gillswan.

  12. Andrew

    But can anyone old enough to remember Hawke recall how the WGT managed to outspend even Rudd? That record 27.5% of GDP might stand for eternity.

  13. Dan

    It’s fairly simple really. Government can’t spend an extra 3% of GDP while receipts go down by 4% and hope like hell that income increases by 8% to cover the debt. You would have to be medicated by a tattooed bogan to think otherwise. I’m looking at you Swanny

  14. Baldrick

    Why are we spending 26% of GDP this financial year, the same as the GFC year of 2009-10, when the only thing we’re stimulating is tax increases?

  15. Joe Goodacre

    Why is spending and receipts as a % of GDP a relevant metric?

    If an economy tanks, spending may decrease on absolute terms yet be a greater share of GDP.

    If an economy booms, spending may increase on absolute terms yet be a small share of GDP.

    This metric could lead to someone to the conclusion that one government was a high or low spending when the reality may be a complete opposite.

    I would have thought that inflation adjusted numbers of spending and revenue would give a better indication of what was going on rather than these numbers as a share of GDP. Am I missing something here?

  16. Tom

    Sinc, why do you economists insist on excusing the criminality of socialist spendthrift governments by burying their outrageous theft of public funds under the comfy frock of GDP percentages when you know that GDP is a half-arsed Keynesian device that attempts to glorify government spending as wealth-producing when it does nothing of the sort? Since 2006-07, the robbery of the Liars-Greenfilth gang has increased government spending by 86 per cent from $219 billion to $409 billion in 2013-14 according to the Commission of Audit’s estimate last week. That doesn’t count the $315 billion of government debt, which your mob also excuses by using the net debt trick, which subtracts from gross government debt a notional valuation of national assets that can never and will never be liquidated. We are now pissing half the national defence budget against the wall to cover the interest bill, which eight years ago was ZERO, and you and yours have reduced this national crisis to an intellectual drawing room discourse over port and cigars at the Melbourne Club.

  17. Tel

    It shines out like a beacon, Australia never recovered from Gough Whitlam.

    Would be helpful to mark the various governments on that chart as shaded blocks.

  18. .

    Why do economists think GDP is the correct denominator?

    Because GDP is a measure of production. Tell us something better to use.

    Tom – the pets are fucking idiots. Saul Eslake said the Canberra bushfires were good for ACT GSP growth.

    What an arseclown. Let’s bomb the shit out of France again so they have a 1950s-1960s style BOOM.

    Its like these stupid pricks never heard of the Leintoff paradox or the reasons why it happened.

  19. Phil Fry

    If spending is the problem, and I agree .. what’s the reasoning behind Australia have a AAA credit rating?

    I mean, personally I don’t care about my credit rating if I’m not borrowing money and don’t need to.

    Do people not understand the AAA credit rating is only important if you want to borrow? Or if you NEED to borrow.

    Or have I misunderstood why the Green/Labor followers all quote the AAA credit rating to justify why we are “not in trouble” ..

    ?

  20. Sinclair Davidson

    what’s the reasoning behind Australia have a AAA credit rating?

    The probability of Australia defaulting on its public debt, as perceived by the ratings agencies, is very low.

  21. Sinclair Davidson

    Tom – I have no idea what you’re talking about and I suspect you don’t either.

  22. Natural Instinct

    Dot, as I mentioned above, the expenditure terms are not driven by “production” as measured by GDP. Unless you think that government spending drives the engine of the economy. A bit Keynesian.
    .
    Starting at a macros level, why not per capita? Yes I know that it is too “gross” a measure – but any more so than GDP? What about spending per taxpayer?
    I know people want to get things on the same graph (probably the problem) but here are some ‘macro’ ratios that would be more strongly linked to their drivers.
    Health: per capita
    Education: per school age person
    Pensions: per old person
    DSP & Unemployment: per non working person. (Note the cost shifting of people from the dole to DSP means these should be treated together).
    etc.
    Oh and the last one that really mystifies me – Defence as a % of GDP. Why?
    .
    All I was saying is that Tax per GDP and Expenditure per GDP hides a lot of sins – like Joe G mentioned above.
    And that if people knew the absolute growth in $ spending, they would more readily say: Hold on a minute, better slow down a bit, and not be fooled.

  23. Natural Instinct

    The probability of Australia defaulting on its public debt, as perceived by the ratings agencies, is very low.

    Could that be because the rating agencies have seen no evidence that the old cow, that is the Australian taxpayer, has never indicated or shown signs of seriously revolting against the milking of higher and higher taxes imposed by government – and thus the debt is safe.
    Or could it be that a rating agency never says something you don’t already know, e.g. defaulting countries are never is C- before they fall – only afterwards.

  24. .

    GDP per capita is a good metric.

    If you have something better, use it.

    If you like GDP or not, there is such a thing out there as ‘total production’.

  25. John Doyle

    http://pro.stansberryresearch.com/1404EOAJULY1/LPSIQ513/?h=true

    Spending is indeed the problem, but it’s been going on since WW1,when economies started detaching their economies from the gold standard. It’s so bad in the USA right now a default is the only option they have. We are a rare exception in that were are still behind but not unable to pay our debts, yet. Still, when [it's not an "if"] the USA defaults it will create a tsunami that will make havoc around the entire planet. It will be the first of several bows that will drive our civilization to destruction. The end of cheap oil, the decline in mineral reserves, the loss of soils, of fisheries, and forests are all in the firing line.
    Hockey and Co haven’t a clue about all this. Thats what they should be addressing. But they are in good company.

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