Alan Kohler was right to give Peter Costello a spray on Inside Business yesterday in an editorial that opened as follows:
The 2005 financial year Budget outcome was published on Friday, with a final surplus of $13.6 billion. That means the estimate in the May federal Budget was out by more than 50 per cent, or $4.4 billion. Now that’s bad enough, after all it was only a month before end of the financial year. That sort of error in the corporate world would see the chief accountant counselled, if not sacked. But in the government world he’ll be made chief executive.
We’ve crunched the numbers and the table below shows they are not pretty as far as Cossie’s record as a budget forecaster goes. On average since 1999-00 (when accrual accounting was introduced), his full year-ahead projections of the underlying cash balance have been out by more than 200%; the Mid-Year Economic and Fiscal Outlook projections (typically made about 7 months before the end of the financial year) have been out by almost 200%; and the projections made in the budget for the following financial year (ie, about seven weeks before the end of the financial year) have been out by about 75%.
And have you noticed that the final outcome has almost always been “better” than projected, whether in the original budget, MYEFO or the budget for the following financial year – with the exception of 2001-02 which was the year when the economy slowed unexpectedly and the budget went into deficit. Typically, the biggest taxing Government in Australian history underestimates its tax take.
If Costello was CEO or CFO of a publicly-listed company, and sat for more than 3 months on knowledge that the company’s end-of-year financial result was materially very different from that expected by the market, he would be guilty of a pretty serious offence. Indeed, ASIC has just been given new powers to issue on the spot fine for companies that fail to comply with continuous disclosure requirements that investors must be kept fully informed.
The Commonwealth bond market appears to have been seriously misinformed. Why, in this as in so many other aspects of financial reporting, is the Government not bound by the same laws and regulations that governments impose on corporations?
Cossie’s lame forecasting record – the evidence
|Year||Budget||Mid-year update||Next Budget||Outcome|
|2005-06||$8.92bn||to come||to come||to come|