So this morning I was on Radio National with James Paterson and Ben Eltham talking about cigars, budgets, and broken promises.
Ben made the point that the Australia faced a revenue problem and not a spending problem – as people of his political persuasion are wont to do. James and I argued the contrary position. We all cited the budget papers to support our argument. But Ben had an interesting cavrat – he only wanted to compare the budget situation to the Howard era. Anyway, I thought I’d have a look at the Howard era compared to the Rudd-Gillard era to see if there is any justification for Ben’s argument.
So looking at the MYEFO data from 1996-97 to the present I graph Receipts and Payments as a percentage of GDP and then calculate the average receipts as a percentage of GDP during the Howard era (25.03%) and then calculate the average payments as a percentage of GDP during the Howard era (24.14%). First thing to note is that the Howard government ran, on average, a budget surplus of slightly less than 1%.
So look at the first figure. Here I have plotted Receipts and Payments and the black broken line is average receipts during the Howard era.
That looks like Australia has a revenue problem – if the Rudd-Gillard government had enjoyed revenue collections at the same rate as the Howard government their spending sprees wouldn’t have mattered much.
But that is only half the story. If the Rudd-Gillard government had spent at the same rate as the Howard government – remember “this reckless spending must stop” – what would things look like? In the second figure I have plotted Receipts and Payments and the black broken line is average payments during the Howard era.
Spending remains well above the proliferate Howard era spending.
So the overall picture is unclear – if you just look at the first graph then the revenue argument appears obvious. But that is simply cherry-picking. You should, at least, look at both sides of the coin and also at longer time series of data.
In the third graph I show Receipts and Payments as before but now include their long-run average values (the broken lines).
As I keep arguing – Receipts is back at the long-term average, while Payments remains above the long-term average. Note too that the long-term averages suggest that Australia has run, on average, a budget deficit, while the Howard era averages suggest that the Howard government run, on average, a surplus.
It is only possible to argue that Australia has a revenue problem by selective reporting of the statistics. (Of course, for statists Australia will always have a revenue problem because the tax system will never generate the revenue that they’s like to spend – but that is a different story).