Ideas@TheCentre
Smelling the fiscal rat
Ordinary people don’t understand the entrails of government budgets, but they can certainly smell a rat – the rodent in this case being the federal government’s mid-year budget review.
Only 26% of respondents to a recent Newspoll survey believe the government will achieve its much-trumpeted budget surplus this year, and just 35% think it matters very much whether they do or not. The credibility of fiscal policy – a precious commodity – has been damaged by years of ad hoc actions, poor estimates, policy zigzags, and inconsistencies. Continuing along that path, the mid-year budget review is surely one of the most duplicitous acts of fiscal policy ever performed in Australia. It is open to challenge on three levels.
First, many experts who do analyse and understand the entrails of budgets think the mid-year review is painting a rosy scenario. Although the estimates of revenue have been lowered since the May budget, there are real doubts as to whether they have been lowered enough. The dearth of revenue from the minerals resources rent tax in the first quarter – only revealed since the mid-year review – has reinforced those doubts.
Second, even if we give the government’s number crunchers the benefit of the doubt, this mid-year review is still open to challenge on a second level. Whether the budget is a few billion dollars in the black or the red is not of sufficient economic consequence to justify turning a mid-year budget update into a mini-budget. There was no strong economic reason for the government to perform fiscal gymnastics – and create much uncertainty surrounding rumoured tax measures – just five months after the May budget in order to restore a wafer thin and largely symbolic surplus (or the illusion of one, as the case may be). That is entirely different from arguing (as I do) that fiscal policy should be tighter than it is, but the opportunity to bring that about was missed in the budgets of the last few years, and a mid-year review is not the place to make up for that failure.
Third, even if we concede that Treasurer Wayne Swan was right to adjust policies to keep on track for a surplus this year, there is a third criticism of the mid-year ‘mini-budget’ – expenditure and revenue measures are of very poor quality. Fiddling with the timing of revenue and expenditure, and diverting unclaimed superannuation and bank balances to government coffers, figures prominently. The biggest measure – the shift to monthly tax payments for large companies – is an unprincipled cash grab. Tellingly, it is nowhere to be found in the Henry tax review’s long list of recommendations.
Amazingly for a supposedly tough budget, the mid-year update shows the government has managed to increase its spending through the sum total of policy decisions since the May budget. All the heavy lifting is to be done by yet more revenue increases (which in Swan-speak are labelled as ‘savings’ as if they were cuts in spending). Among the few permanent expenditure savings are those in the private health insurance rebate and the baby bonus, which will result in about half a billion dollars a year of genuine savings. But this is small beer in a budget of more than $360 billion. The welfare state is alive and well.
The Newspoll results once again demonstrate that most of the time most people can’t be conned by political spin.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
