Opinion & Commentary
The Budget is not what it seems
The Rudd government wants us to believe that it has laboured mightily to bring forth a budget that increases the surplus by being tougher on government expenditure than on taxpayers.
A careful examination of the budget papers suggests otherwise.
For a start, the government has used the old trick of rushing through large, one-off payments before the end of the current financial year to shrink the last Howard/Costello surplus and flatter its own achievements by comparison.
These one-off payments total almost $3 billion. If they are removed from 2007-08 expenses to enable like-with-like comparisons with 2008-09, the current year’s surplus would be 1.8 per cent of GDP, the same as that now projected for 2008-09. The point is not that these payments can just be assumed away, but that making them in June rather than July (or not at all) creates the false impression of increased fiscal discipline in 2008-09.
The one-off payments also distort the real growth rate of expenses, which the government boasts of being only 1.1 per cent in 2008-09. Once the distortion is removed, an underlying real growth rate of 2.2 per cent is revealed for 2008-09, followed by 4 per cent in 2009-10. The trend is still one of slower growth than in recent years, but hardly supportive of Wayne Swan’s claim to be the Scrooge of government spending. In the Howard government’s first two years, real growth was 1.7 and 0.6 per cent respectively, before the ‘drunken sailor’ syndrome took over.
Although this budget includes more expenditure savings than revenue increases in 2008-09, the savings include a number of one-offs while the revenue increases build in later years. The true on-going picture does not emerge until 2010-11, when the revenue raising measures exceed the expenditure reducing ones. This balance reveals a preference for supporting big government rather than curbing it.
It is true that the government has honoured its promise to keep the tax/GDP ratio below the 2007-08 level, but in the prevailing economic circumstances achieving this target was a cinch. A huge terms of trade gain is expected to boost nominal GDP growth to more than 9 per cent. Against such a generous benchmark, it would have been remarkable had the tax/GDP ratio not fallen. To the government’s credit, it has delivered the promised personal income tax cuts, but total tax revenue is still set to grow by 5 per cent in 2008-09.
Finally, there are the $40 billion in transfers to various funds for infrastructure, health and education. This is largely accounting gimmickry. The proceeds of surpluses have to be put somewhere, and if there is no debt to pay off then they have to be put into financial assets. Creating earmarked funds by attaching labels to those assets does nothing to relieve the real resource constraints on the overall level of future spending. While the gimmickry may be considered harmless, the danger is that it will encourage expectations of - and pressures for - a future spending spree.
Robert Carling is a Senior Fellow at the Centre for Independent Studies
