“Labor has a spending problem, not a revenue problem.” — Joe Hockey
That was the now-Treasurer, then shadow treasurer, whenever his opposite number Wayne Swan had to announce further write-downs of tax revenue and, up until December 2012, accompanying budget savings. According to Joe, it didn’t matter that the economy was locked in a pattern of low nominal GDP growth with a currency around US$1.05 — it was all Swan’s fault for not cutting spending enough.
Now the government has a dollar nearly 20 US cents cheaper and an economy growing faster than forecast, but it’s starting to warn about having to write down revenue because of the fall in iron ore prices. This year’s Mid-Year Economic and Fiscal Outlook will become another mini-budget, it seems, required to pay not merely for falling commodity prices but the government’s commitment to the latest iteration of the Iraq debacle and its pandering to national security institutions — cost so far, $630 million and counting
Indeed, it’s clear that the Coalition has a spending problem, not a revenue problem. Hockey blew out the 2013-14 budget outcome with a surge of nearly 8% in spending, in real terms, whereas Swan had cut spending in real terms by over 3% in 2012-13. This year, spending was forecast at budget time to be 25.3% of GDP, still higher than three of Labor’s budgets. Hockey has even admitted that his fiscal consolidation announced in May wasn’t as great as some of Labor’s. But at 23.6% of GDP, he will be enjoying tax revenues up to two points of GDP higher than Swan had access to at various stages. A higher tax take, a much lower dollar, a stronger-than-forecast economy — and yet the government is warning of a deteriorating fiscal outlook.
As it turns out, Crikey believes Hockey is pursuing the correct macroeconomic strategy — despite the years of rhetoric about debt and deficits and the talk of budget emergencies since the government was elected, he has declined to aggressively slash spending, knowing that that would risk economic growth. While playing up an image of fiscal thug, Hockey has made the right call about the overall level of stimulus for an economy that is still hovering just below trend growth. It’s just that that judgement stands in remarkable contrast to so much of the nonsense he uttered when in opposition, and continues to utter today.