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Tuesday, May 03, 2016

How to read the budget papers

So, you've been handed your pile of budget documents. What do you read first?

That's up to you, but I always read the budget speech first. It is thin. It gives me an idea of what the Treasurer wants me to think are the main points.

Then there are two summary documents: Budget at a Glance and Budget Overview.

They are A4-sized, rather than A5. They also sum up what the government wants to point to.

But Budget Paper 1 (about as thick as a thumb) contains a lot of what you will need.

In it are..

This is more of the same really, but gives a very clear guide to the main measures, presented less politically.

It also includes projections for the budget deficit or surplus.

These four year projections (in the case below from 2013-14 to 2016-17) are called the forward estimates. You'll often hear the term "over the forward estimates". It means "over the next four financial years".

Note that the "underlying cash balance" is the one to look at. It's the language people speak these days. Don't bother with the fiscal balance:The first two years are "estimates". The last two years are semi-automatic "projections", usually made by plugging in standard economic variables rather than forecasting them.Statement 1 also contains the major economic forecasts, which are only for two years:

This is where all the economics are set out, and the reasons for budget measures spelled out. It is very interesting, if you're into that sort of thing.

The best table of all, my favourite in the whole budget is Table 1, which has all the economic forecasts together in one place:

This explains why the surplus and deficit have come to be forecast as they are. Former Department of Finance deputy secretary Stephen Bartos says "if you only read one table, make it the reconciliation table".The reconciliation table shows you the contributions to changes from the previous budget and MYEFO of

  • policy decisions, and
  • changes in economic circumstances

In other words,

  • How much the government decisions have improved or worsened things, and
  • How much the economy has improved or worsened things.

Another table tells you what is happening to net debt and the more important concept of net worth:Statement 3 also includes the deficit/surplus outlook, probably for a period of ten years, and the net debt outlook (at least graphed), for an even longer period.

It outlines the thinking behind the projections.

The Appendix headed "Sensitivity of Budget estimates to economic developments" is also very useful. it deals with questions like how likely is it the projections will be blown off course, and in which direction does the danger lie?(This is also examined with a longer term focus in a separate budget paper toward the end of Statement 1 entitled: Statement of Risks)

This outlines what's happening with taxes. There's even a (small) nod to tax expenditures at the end.

This is the final statement in Budget Paper 1 and is wonderful.

It confirms that government receipts (mainly tax) reached 25.2 per cent of GDP in Howard's last year in office. By Gillard's last year they had shrunk to 23 per cent.

The details are in a Budget Paper whose number keeps changing. Last year it was called Budget Paper 2.It is headed Budget Measures. But it includes everything, large and small. So the best bet is to find the key announcements of interest in the overview, and then to look up the details in Budget Measures, possibly by searching the pdf.

The Budget Paper entitled Agency Resourcing has the answer (Budget Paper 4 last year) as do the Portfolio Budget StatementsAgencies such as the ABC get money from more than one source (Communications and DFAT). This paper brings them together.Also helpful is a whole series of separate yellow documents, the Portfolio Budget Statements. They are not handed out at the front of the lockup but are in boxes in one of the corridors and available on memory sticks and for download. Get one for the portfolio you cover:

The Budget Paper 1 statement entitled Expenses and Net Capital Investment attempts to answer that question, looking at spending by function rather than department of agency. It shows how much is spent on defence, education, or broadcasting and so on whatever the agency. Useful for broad-brush stuff.You can practice here:

Good luck!

In The Age and Sydney Morning Herald