In May 2013, Wayne Swan estimated revenues for
the 2014-15 financial year of $401 billion; this was two years in
advance. In May 2014, Joe Hockey projected revenues of $385 billion for
the same period one year in advance.
Just six months later, in December 2014, Hockey downgraded his
original estimate to $374 billion. On this revised figure, Wayne Swan’s
projection was out by about 7%, while Hockey’s was out by 3%.
While both men were taking advice from the same people within the
Treasury department, each had their own input and their own ideological
preferences. So whose projection was the more accurate? Taking the time
factor and more recent information available to Hockey into account,
Wayne Swan was more accurate.
Welcome to the world of revenue estimates. It’s an inexact science
full of unknowns and Joe Hockey is now learning that the hard way. While
we might be tempted to go soft on him, we all remember his heartless
demeanor as shadow treasurer, one that was excessively critical of Wayne
Swan as he conveniently ignored the difficulties Swan faced at the
Now, it is Hockey’s turn to receive some criticism. Hockey is a man
all at sea. He really doesn’t know what to do. His body English gives
him away. His Neo-liberal ideology has no answer to address how he
should approach this difficult task. He says his budget will act as a
shock absorber to protect the Australian economy, but he doesn’t say
how. Whoever wrote that line for him, incidentally, should consider a
For Hockey’s benefit and Cormann’s too, there is only one way to
protect the Australian economy and that is by deficit spending and lots
of it. If either man is going to ‘fix the budget’ they will have to do
what Labor did and spend up big. This is both men’s ‘Caesar at the
no good trying to take a swipe at Wayne Swan for his earlier
projections. These men should take a good look at their own. All the
debt hysteria that Hockey whipped up prior to last year’s election is
coming back to bite him. How well we remember the debt truck travelling
around the country creating fear and uncertainty in the minds of those
who don’t understand how a government funds its spending. Well, now it
appears, he doesn’t either.
Back in December 2013, after the release of his first and quite dishonest MYEFO, I wrote an article telling Tony Abbott what he had to look forward to:
“In 2016 he will likely have to account for 6.5-7% unemployment, a
lack-lustre private sector, a serious Terms of Trade deficit, a
national debt of around $600 billion, no surplus in sight and a less
than encouraging world economic outlook. The numbers will bury him. And
in addition to all of this, we still don’t know what we don’t know.”
I should have addressed it to Joe Hockey. It wasn’t difficult for me
to see what was coming. It should not have been difficult for him.
To produce a healthy budget you must have a fully engaged workforce
maximising the production of goods and services. Ideally, this should be
achieved by the private sector but when they are sluggish, as they are
now, government must take up the slack and inject money into the
economy; lots of it, targeted at producing goods that we, and the rest
of the world want. It is deficit spending but it is not debt.
Their failure to understand this is Hockey’s and the government’s
problem. Because they are hypnotised by neo-liberal economic ideology,
they can’t see it. When Hockey says the budget will act as a shock
absorber, he doesn’t really know what that means. If he did, he would
follow it up by announcing a stimulus package to get the 1.8 million
Australians currently unemployed and underemployed back to work. That’s a
BetaShares chief economist David Bassanese
says a perception that Australia’s longer-term budget problems are due
to falling commodity prices is misguided. Mr Bassanese said that he
estimates half of the $40 billion deficit this year is caused by
unemployment being higher than normal – currently at 6.3 per cent, and
forecast by this month’s MYEFO to hit 6.5 per cent.
He’s right. The underutilisation of the workforce is the big drag on
the economy. Mr Bassanese argues that a gradual fall in unemployment and
the revenue boost from income tax bracket creep are the key elements to
tackle if the Government is to return to surplus.
The reality though, is that surpluses are not good for the economy
anyway. They suck money out of the system, money that could be
contributing to growth. Deficit spending injects money into the system,
creates employment, creates demand, increases production, increases
taxation revenues and growth. It’s not that hard to grasp.
If Joe Hockey and Mathias Cormann can’t see that and continue to cut
spending they will only aggravate an economy already on a knife edge.
If they weren’t so blindsided by the excessively wealthy to whom they
owe their election victory, they would see that instead of attacking
the less well off, they could have their surplus simply by abolishing
tax concessions for superannuation and employer contributions, which
would save them $36 billion this financial year and nearly $50 billion by 2017-18.
It is that easy.
while we’re on the subject, yes, Joe Hockey did set a date for the
budget to be back in surplus. Way back on 16th May 2012 he told the National Press Club that the budget would be back in surplus in the first year of an LNP government and each year thereafter.