How tough was the budget? Not especially tough …
How tough was last night’s budget? Prominent mediaphile Chris Richardson last night declared it was the toughest budget since 1996. And the government would like us to believe that all the pain inflicted on low- and middle-income earners was part of a new fiscal discipline.
Well, the budget numbers can help us answer that question. According to the historical data to be found at the back of the main budget paper, the overall tax take will rise from 21.6% of GDP this year (estimated) to an estimated 22.1% of GDP in 2014-15, then to 22.5% the following year, then 23% and 23.2% thereafter. That 22.1% of GDP for next year will be the highest tax take since the last Howard budget, when tax:GDP reached 23.6%. Labor’s tax take never got above 21.7%, in 2008, and in 2010-11 it fell to 20%.
So next time the Liberals insist they’re the party of lower taxes, bear that in mind.
But it’s spending where the real debate about tough budgets lies, of course. The budget forecasts a spending cut of 1.7% in real terms — the biggest spending cut not since 1996 but since 2012, when Wayne Swan cut spending not merely in real terms but in nominal terms. Swan’s 3.2% cut in real terms was the biggest cut since the 1960s — but it was achieved partly by pushing spending back into 2013-14, when spending ended up growing by 8.9% in real terms. Except, that figure is itself the subject of fiscal trickery by Joe Hockey, because it includes his $9 billion gift to the Reserve Bank. Labor’s Economic Statement on the eve of last year’s election had spending growing at a more modest 5.7% in 2013-14, closer to the sorts of spending rises we saw in the last two profligate terms of the Howard government.
Even so, that demonstrates why it is sensible to look at several years’ worth of spending, rather than an individual year.
As the government’s own budget figures note, spending resumes growing in 2015-15, although initially slowly at first — just 0.4%, then over 2%. If the government is able to perform to those estimates and forecasts, it will be the most prolonged period of low growth since the mid-1990s, when the Keating and Howard governments combined to keep spending growth contained — Costello’s draconian 1996 and 1997 budgets actually followed two years of sub-2% growth from the Keating government.
But the modest cut in spending next year means this government will still be spending over 25% of GDP, falling only to 24.7-24.8% of GDP over the following three years — around the level the Labor was spending from 2010 to 2012.
What those figures don’t show is the impact on tax and spending beyond forward estimates of a number of measures — in particular, once changes to family tax benefit payments really kick in, once fuel excise indexation starts generating real revenue, once the government starts pulling back on its education payments to the states.
And what the figures of course don’t show either is that the government has based its budget numbers on worst-case scenario for the economy: it is predicting a slowdown in growth this calendar year; it has further downgraded nominal GDP forecasts; it says unemployment will edge back up; it forecasts a substantial deterioration in our terms of trade.
All of those things could happen, of course — especially if voters actually believe the government’s rhetoric about a budget emergency and stop spending. But what’s more plausible is that the economy performs more strongly than the lousy 2.5% predicted for next year. Any improvements on that rate of growth will feed into Joe’s bottom line, giving him an opportunity to return to surplus more quickly… or to put it in a war chest for 2016.
That’s why it’s not a good idea to hold your breath waiting for that forecast period of low spending growth to actually happen.