A single figure demonstrates the extent to which the government has, contrary to the claims of Treasurer Scott Morrison, had a “revenue problem” over the course of its term.
According to the budget papers, in the coming year (2016-17) the government expects to receive $411 billion in total receipts, of which $383 billion will be tax receipts. But when 2016-17 first appeared in the budget papers in the final year of Labor’s term in office in 2013, as a projection, Treasury projected $453 billion, of which $431 billion would be tax receipts.
How that number has changed since 2013 illustrates why the government’s tough-guy fiscal rhetoric has vanished — along with the prospect of returning to surplus any time soon.
First of all, Labor itself wrote down the expected revenue for 2016-17 when Chris Bowen released his Economic Statement just before Kevin Rudd called the 2014 election.
Both nominal GDP and forecast commodity prices were revised downward in that statement, cutting receipts for the year by over $8 billion — but increases in tobacco excise, the fringe benefits tax rorts crackdown (later abandoned by the Coalition) and a financial stability fund all increased revenue, albeit offset by Kevin Rudd’s early move to an emissions trading scheme. The net increase was around $5.4 billion, leaving projected revenue down by around $3 billion.
Treasury and Finance essentially confirmed that position in the 2013 Pre-election Economic and Fiscal Outlook; receipts would be $450 billion in 2016-17, they forecast.
But after that, things deteriorated further. The 2013 Mid-Year Economic and Fiscal Outlook forecast revenue $18 billion less revenue in 2016-17 — $432.8 billion. First of all, Joe Hockey — despite the “budget emergency” — cut his own revenue by billions across the budget period, including $5.4 billion from 2016-17, via removing the carbon price, the mining tax and Labor’s superannuation tax concession reforms.
But “parameter variations” struck the tax take hard; 2016-17 receipts were written down by another $12 billion. GDP growth projections for the year were revised down, company profits were revised down from strong positive to negative growth and small business and property income were also revised down.
Far from being embarrassed by these write-downs, Joe Hockey and Finance Minister Mathias Cormann were proud of them. Apparently they signalled a new era in government accounts, the end of Labor’s reckless indifference to fiscal discipline, a restoration of prudent budgeting. They were, indeed, a “line in the sand”.
“Today’s MYEFO draws a line in the sand after six years of economic and budget mismanagement from Labor,” Hockey said. “At this point I want to draw a line in the sand on the numbers that we have inherited,” he later told a media conference. Cormann agreed:
“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, as the Treasurer said, and to provide a believable set of figures. Part of that is to base those estimates on more realistic assumptions than has previously been the case.”
Unfortunately for Hockey, sand, whether lined or unlined, was what his entire treasurership was resting on.
Initially, everything went according to plan. In the 2014 budget, receipts for 2016-17 were revised up by $4 billion. There’d been a tiny downgrade due to parameter variations, but measures like the indexation of fuel excise and the temporary deficit levy added to tax revenue. So far, so good.
Then it all went to hell.
Six months later in the 2014 MYEFO, there was virtually no policy-related changes that affected receipts, but parameter variations cut 2016-17 revenue by another $7.5 billion; now it would be $429 billion.
Treasury actually upgraded its forecasts for the economy and profits for the year, but wages growth was revised down and falling commodity prices belted company profits.
At the 2014 MYEFO media conference, Hockey declared that this set of numbers “draws a line under the sand of the last year of Labor delivering a Budget. They made a $30 billion error between what they promised and what was actually the outcome.”
The sand was running out, though, and fast. In last year’s budget, as 2016-17 moved from a projection into an estimate in the budget papers, the previous downward revision in MYEFO was increased by $1 billion, and there was a new downward revision of more than $6 billion: receipts were now estimated to be $422 billion, mostly because of commodity prices.
Five months later, Scott Morrison took over the Treasury portfolio and immediately declared that there was no revenue problem, merely a spending problem (there was indeed a spending problem — it had blown out under Joe Hockey, to 26.2% of GDP, the highest level since the 1980s). But despite the lack of a revenue problem, revenue continued to deteriorate: down 2016-17 receipts went again in last year’s MYEFO — now to $415 million, another $7 billion hit.
Estimates for receipts from personal income tax, company tax and superannuation taxes all fell. Commodity prices again contributed, but this time there were significant downgrades to economic parameters — nominal growth, wages and profits were all downgraded, hitting revenue.
Thank goodness there wasn’t a revenue problem — or things would have been really crook.
In the 2016-17 budget, you’ll never guess, but Morrison unveiled another $4 billion write-down for what is now the coming budget year, including a $6 billion tax revenue write-down partly offset by revenue from non-tax sources such as charges and dividends.
The bulk of the $42 billion revenue write-down since 2013 has been driven by commodity prices and other parameter adjustments, most of which have been beyond the control of the government. But the Coalition has repeatedly declared itself superior to Labor, which endured exactly the same thing.
Joe Hockey declared “a line in the sand”, which kept getting washed away, that the days of write-downs were at an end under more prudent stewardship. Scott Morrison claims that there is no revenue problem even after writing down revenue twice in his short time as Treasurer. Arrogant words from a government repeatedly mugged by reality.