You gotta hand it to News Corp, they can take the old don’t-let-the-facts-get-in-the-way-of-the-story obsession to heights the rest of the media can only dream of. Today in that journal of record, the Telegraph, Wayne Swan is attacked for the 2013-14 budget outcome revealed yesterday by Treasurer Joe Hockey and his significantly more competent colleague, Finance Minister Mathias Cormann. The attack is creatively titled “Wayne’s World of red ink” (Wayne Swan, Wayne’s World — geddit?)
The Wayne in question of course hasn’t been Treasurer for exactly 457 days, and wasn’t Treasurer for a single day of the 2013-14 financial year. The man who has been Treasurer for 384 days, Hockey himself, was eager to blame Swan as well. “This is more than a $30 billion deterioration in the year since former Treasurer Wayne Swan delivered his final Budget,” Hockey and Cormann said in a media release.
Let’s track what’s happened to the 2013-14 fiscal forecast over time. It was December 2012 when Wayne Swan had to publicly humiliate himself and admit Labor’s pursuit of a surplus that financial year was being abandoned because yet further rounds of savings to try to catch up with deteriorating revenue would only harm the economy.
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In the 2013-14 budget five months later, Swan forecast a deficit of $13.5 billion. He was only in the job a further 43 days before the return of Kevin Rudd ushered Chris Bowen in for a brief stint at Treasury. Before the election was called, Bowen revealed further revenue write-downs that would have taken the deficit up $12 billion to over $25 billion — an appraisal confirmed a couple of weeks later by Treasury and Finance, acting independently of any politicians, in the Pre-election Economic and Fiscal Outlook.
It was Joe Hockey in December last year who, in the Mid Year Economic and Fiscal Outlook, presided over the biggest blowout — by around $16 billion, because of further revenue write-downs and the government’s own post-election spendathon, including $9 billion wasted on the Reserve Bank and tax concession handouts to the fringe benefits tax rorters and rich superannuants.
At the time, Hockey refused to take any responsibility for the blowout, insisting he was merely cleaning up Labor’s budget mess and that a softening economy had forced him to write down revenue as well. Moreover, the government insisted that, in Cormann’s words, “it is a matter of record that the previous government invariably overestimated revenue and underestimated expenditure. They kept promising surplus budgets and kept delivering more deficits. Our core commitment with this budget update is to draw a line in the sand … ”
That “draw a line in the sand” image was a popular one. “Today’s MYEFO draws a line in the sand after six years of economic and budget mismanagement from Labor,” Hockey said in a media release.
Hockey and Cormann revised the deficit out still further between the December “line in the sand” and the Budget in May, by over $3 billion. And while yesterday’s final budget outcome came in slightly ahead of the May forecast, it was still a deterioration on MYEFO.
What happened? On the face of it, the deficit should have improved significantly on MYEFO. Back then, Hockey forecast economic growth at a bare 2.5% for the year and unemployment at 6.25%. In fact, the economy grew 3.1% and unemployment spent much of the year hovering around or below 6%, finishing at 6.1% in June. Moreover, spending came in almost exactly as forecast in MYEFO — the final result was less than $2 billion out. And Hockey had the benefit of a lower exchange rate than Wayne Swan did, even before it fell below US$0.90 in recent days. Above all, didn’t Hockey and Cormann say the days of “overestimated revenue” had finished?
Not quite. MYEFO’s “line in the sand” revenue forecast was $364.9 billion; the result was $360.3 billion — and that’s despite an extra billion from the GST and excise. The main culprit? Lower company tax — the culprit behind Wayne Swan’s repeated write-downs.
That’s partly because mining companies are expensing their huge investment spending of recent years, lowering their profits and tax payments to Canberra. But outside mining, companies have enjoyed strong profits: shareholders of ASX 200 companies enjoyed a record $68 billion in dividends, according to Credit Suisse, up from $61.3 billion the previous year, helped by improved payouts from Telstra, Wesfarmers and the Commonwealth Bank. Much of that dividend flow will be into superannuation accounts — especially the self-managed super fund sector — where they will attract hardly any tax. Indeed these funds and other shareholders could enjoy perhaps $3 billion in credits from the Tax Office under the dividend imputation rules. The Tax office makes distributions to taxpayers who have no income (they are mostly retired) and whose super funds receive a surplus of credits under dividend imputation. “Tax Office statistics show almost 300,000 self-managed superannuation funds eliminated or reduced their tax bills through exemptions on super and $2.5 billion in franking credits in 2011-12,” Fairfax reported in August. There’s been a surge in dividend payments since then.
For individual taxpayers, the fall in real wages has meant a slow fall in personal tax to the government as well. And this morning, the ASX fell below the level it was at the start of the year, meaning revenues from capital gains will be under real pressure. The outlook is thus likely to continue to be for weaker revenue growth.
Of course, every time Swan announced a write-down, Hockey would declare that Labor had a spending problem, not a revenue problem, so presumably the same observation can now be applied to Hockey himself.
Hockey, however, is still down the beach playing in the sand. “The fundamental point being this draws a line under the sand of the last year of Labor delivering a budget,” he said yesterday, 283 days on from MYEFO, prompting a journalist to ask “is this the final line in the sand?”
If company tax keeps being revised down, probably not: Joe could be blaming Swanny and drawing yet more lines in the sand for years to come.