IF JOE HOCKEY HAD A BRAIN.............
Budget’s political pain turns out to have been for nothing
Treasurer Joe Hockey has unveiled a serious deterioration in revenue in the latest budget update.
A year after the government promised that the days of
overestimating revenue were at an end, Treasurer Joe Hockey has unveiled
another write-down for revenue this year and in following years. That’s
on top of the write-down back in May. Since the Pre-Election Economic
and Fiscal Outlook in August 2013 — the one genuinely independent guide
to the nation’s budget, prepared without government interference by
Treasury and Finance — the 2014-15 budget deficit has blown out by
nearly $16 billion, despite the government’s constant rhetoric about its
bringing the budget back under control, and despite all the political
pain that the government has endured. And the deficits for the years
beyond have gone up by nearly $50 billion.
For the man who promised, as late as January 2013, to
deliver a surplus in his first year and every year after that, it’s an
inglorious failure. This is how Hockey’s fiscal problem has unfolded
since his first MYEFO in December 2013 (forecasts surpluses appear as
As the graph illustrates, today’s MYEFO has wiped out all of
the gains Hockey made toward a return to surplus in the May budget
compared to last year’s MYEFO — and then some. All that pain has been,
in fiscal terms, for nothing, with a return to surplus now pushed out to
2019-20 — the fiscal equivalent of the never-never.
However, despite the revenue write-downs, Hockey is still
expecting $379 billion in revenue, $19 billion more than in
2013-14 — compared to Wayne Swan’s situation in 2008 and 2009, when
revenue actually fell in nominal terms. The Commonwealth will
take 23.6% of GDP in revenue, a full 0.8 points higher than last year
and the highest level since Peter Costello’s last budget, while spending
will now increase from 25.7% of GDP to 25.9% of GDP.
Hockey has to take some of the blame himself for his own
revenue situation. It has been his poor handling to 2014-15 budget that
has contributed to a collapse in consumer and business confidence,
making the transition from fading mining investment to more traditional
housing and consumer-based economic drivers much more difficult than it
should have been. And despite the government’s rhetoric about getting
the budget under control, it handed out big tax cuts to carbon emitters,
mining companies, tax rorters and wealthy superannuants.
But the collapse in the terms of trade — expected in May to
be -6.75%, but instead forecast to be -13.5% — is something entirely
beyond the government’s control. The only control the government has is
over how it reacts, and in this case it has reacted appropriately, by
declining to slash spending to match falling revenue. As a result, it is
providing more stimulus to the economy than it had planned, and given
the circumstances, that’s exactly the right call. Indeed, if economic
weakness persists, the 2015-16 budget may include some further stimulus,
not in the automatic stabiliser sense, but reflecting a conscious
decision to undertake further, stimulatory spending.
Hockey is thus in exactly the same position as Wayne Swan
was: battling external forces (Swan had the high dollar, Hockey has low
commodity prices) that keep sucking up his revenue, he’s declined to try
to offset those losses for the sake of economic growth, and he finds
his previous rhetoric about surpluses now very inconvenient.