In retrospect, the decision by the Turnbull government to issue a normal Mid Year Economic and Fiscal Outlook rather than use the opportunity of a political reset and a new Treasurer to undertake a mini-budget looks increasingly flawed.
Tomorrow’s MYEFO will show a significant revenue write-down from lower iron ore prices, lower wages growth and lower economic growth projections. Even putting aside Scott Morrison’s weird fiscal denialism in his repeated assertions that Australia “doesn’t have a revenue problem”, there is also the challenge of spending. Morrison has made much of the need to get spending from 26.2% of GDP, the level it reached under Tony Abbott and Joe Hockey, back to the budget forecast for this year of 25.9%.
Hockey took a deliberate decision to continue to pump tens of billions of deficit spending into the economy in the 2014-15 and 2015-16 budgets, and was correct to do so given the tepid economy and unemployment above 6%. But 25.3% of GDP — where spending will still be at in 2018-19 — is too high given an improving economy.
Morrison should be aiming for something closer to the 24.1% of GDP Wayne Swan managed in 2012-13. Regardless of how the tax reform debate plays out and whether Morrison ever snaps out of his “there’s no revenue problem” delusion, the path to surplus lies in a more rapid reduction in spending than the current lazy plan put forward by the government. And the first step on that path should have been tomorrow’s MYEFO.