Monday, April 16, 2012

Budget 2011-12. The curious case of the income still rolling in

It’s a pre-budget paradox. As regular as warnings from the Treasurer about tight finances are official figures sneaked out quietly showing the budget in good shape.

The latest, put up on the Finance Department’s website late Friday, details taxation income and spending to the end of February - two thirds the way through the financial year.

It shows that at the two-thirds mark the government has banked almost exactly two-thirds of the expected full year’s income tax revenue. It has banked a somewhat weaker 64 per cent of the expected full-year company tax revenue, and an over-the-odds 69 per cent of the expected full-year GST revenue.

In other words - two thirds the way in - the budget ain’t looking sick, not compared to the official mid-year budget update in November.

Yet finance minister Penny Wong was on the TV Sunday talking of hard decisions. Wayne Swan says this year’s budget will be in some ways his most difficult. Things ought to be tough. The November update predicted economic growth of 3.25 per cent. So far we’ve had 2.3 per cent. It predicted more than 100,000 new jobs. So far we’ve had 45,000.

The real mystery is not whether Swan and Wong are having us on about revenue falling short - it ought to be, it is why it has fallen short so little (just $2 billion or 1 per cent so far) when the everything we are told about the economy says it should be seriously slipping.

It would be great if the economic figures were wrong - if there were more jobs being created than the figures show. Income tax collections suggest this may be the case. It would be great too if that meant the government didn’t need to cut as hard as it says it will have to in order to achieve a 2012-13 surplus.

But the second hope would be misplaced. Three weeks out from the budget those familiar with it say the cuts are unpleasant. The government needs to forecast a 2012-13 surplus big enough to withstand any downgrades to its economic forecasts as the year progresses. It will be a budget to remember (for many Australians not in a good way) however well revenue is holding up right now.

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