It may be a record, the discovery of a budget black hole in NSW by newly minted Premier Barry O’Farrell as the morning papers and news broadcasts reported this morning.
But the reports on the black holes are a load of statistical noise and rubbish. The purported $4.5 billion black hole is only an estimate and in terms of the cumulative spending and revenue collections by the government, a “rounding error”.
There has been a $200 million improvement in the financial position of the state budget in NSW for the current and next financial year, but try finding that near the leads of any of the stories this morning. There was an unseemly gallop towards the new government’s point of view and away from rational analysis.
O’Farrell’s predecessor Kristina Keneally started off the same way and she was following on from a long line of lily gilders in Nathan Rees, Morrie Iemma and of course, the greatest of them all, Bob Carr.
This report from The Sydney Morning Herald was typical of the spin from the new government.
“The Premier, Barry O’Farrell, has announced the discovery of a $4.5 billion hole in the budget hours after taking office, and accused Labor of ”cooking the books like never before” to hide the true financial position of the state…”
“In December the half-yearly review of the budget forecast a surplus of $432 million for 2012-13 and $129 million in 2013-14 (see report, page 4).
“However, yesterday’s briefings revealed the updated prediction is for a deficit of $405 million in 2012-13, which is forecast to rise to $1.2 billion in 2013-14.
“The Treasury briefings show that by 2014-15, the budget will have fallen $2.4 billion into deficit. However, this is beyond the scope of the forward estimates, which only run to 2013-14.
“The government reached its $4.5 billion figure by adding up the forecast deficits between 2012-13 and 2014-15.”
At least this report mentioned the fact that 2014-15 wasn’t covered by the forward estimates, but failed to correct the O’Farrell claim of a $4.5 billion hole.
So just in the forward estimates out to 2013-14, the amount of the black hole is $2.1 billion, nowhere near as sexy as $4.5 billion.
But did any of our intrepid reporters stop to compare that to total government spending in the same time?
No. In the 2011 budget papers it was estimated that NSW would have revenues of $57.7 billion in the year to June 30 and would spend $56.9 billion.
Just extrapolating and using a constant $57 billion as the annual revenue estimate over the next years to the 2015 year, gives a total revenue figure of $285 billion.
Now the $4.5 billion as a share of that figure is less than 2%, which is a “rounding error”. It could be easily fixed by spending cuts or by changes in the flow of revenue mixes.
Cut it back a year and the $2.1 billion hole is less than 2% of the $228 billion in total revenue up to the end of the 2014 year. (The shares of the black holes would be smaller again if the government’s latest projected revenue figures are used, but I don’t have them).
And buried in the spill of The Australian‘s story this morning from Page 1 was this paragraph and probably the real story:
“According to the figures presented to Mr O’Farrell and Mr Stoner yesterday, the state’s budget operating position in the current and next financial year has strengthened from a predicted surplus of $167m in 2010-11 to $365m, and from a predicted surplus of $176m in 2011-12 to $204m.”
That’s right, the government actually starts its term from a financially stronger position, with revenues projected to be $228 million higher over the rest of this financial year and in the 2012 year.
Those years matter because they are the easiest to get an accurate handle on revenues and spending, compared to the so-called out years which are always a lot of guess work and more dependant on rough estimates on interest rates, inflation, employment and the like.
It’s funny how none of the reports mentioned that the state’s financial position had actually strengthened. So much for the black hole rubbish.
The way these reports looked at O’Farrell’s claims don’t give one confidence that rational, critical analysis will be applied to the new government for a while yet.