Ideas@TheCentre
Back in the black or still in the red?
Wayne Swan’s boast that the Commonwealth budget is ‘back in the black’ deserves a sceptical response. For starters, the much-vaunted surplus does not appear until 2012–13. The budget places so much emphasis on estimates for 2012–13 that one could be excused for thinking this is May 2012. In fact, we are in May 2011 and the budget just handed down is for 2011–12. It features a $22.6 billion deficit in the midst of economic conditions (near full employment and historically high terms of trade) that could easily justify a surplus.
The ‘surplus’ estimated for 2012–13 is so small as to be more accurately characterised as a balanced budget. Moreover, Treasury’s 2010 estimates suggest that even a balanced budget in 2012–13 would represent a structural deficit (a measure that strips out unsustainable favourable effects such as the high terms of trade).
Those criticisms aside, the government’s broad goal of tightening fiscal policy is entirely appropriate and should be beyond controversy. More interesting is how they plan to get there.
Swan’s speech trumpeted $22 billion of ‘savings,’ but on closer inspection the savings effort appears timid. The figure of $22 billion is achieved by conflating expenditure cuts and tax increases, and then adding the results over four years to reach a large number. This is pure spin.
The actual expenditure savings year-by-year amount to little more than 1% of total budget outlays, and even those savings are more than offset by new measures that add to outlays. By contrast, the expenditure savings in the last Commonwealth budget that could truly be characterised as ‘tough’ (the 1996–97 budget) were about 5% of outlays, or 3% to 4% after allowing for offsetting new spending measures.
Revenue will do most of the work in putting the budget ‘back into the black’ in 2012–13. The government is relying on a 25% boost to its revenue over the next two years. While most of that represents an automatic cyclical rebound, the budget supercharges the rebound with policy measures that add further to revenue in the next two years (measures that Swan classifies as ‘savings’).
Some of the expenditure and revenue measures in this budget are worthy in their own right, but it is disappointing that in aggregate so little has been done to reverse the 17.4% increase in inflation-adjusted Commonwealth outlays that occurred in just two years (2008–09 and 2009–10) when fiscal stimulus was in full swing.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
