Friday, August 02, 2013

Bowen's last budget

It's the usual shuffle

Bowen gives...

Papua New Guinea asylum seeker program partly funded by lower onshore detention expenses ($1.1 billion)

Extra aid to Papua New Guinea, taken from elsewhere in AusAID budget ($420 million)

Carbon tax converts to a cheaper emissions trading scheme ($3.8 billion)

Proposed cap on work-related education tax deductions postponed to July 2015 ($250)

Infrastructure spending worth $869 million brought forward (zero cost)

Decisions “taken but not yet announced” ($681 million)

...Bowen takes away

Four hikes in tobacco excise of 12.5% ($5.8 billion)

Tighter fringe benefits rules for cars ($1.8 billion)

Public service efficiency dividend boosted to 2.25% for three years ($1.8 billion)

An extra $99 billion to the Tax Office to crack down on unpaid tax and superannuation ($827 million)

Bank deposit levy of 0.05% ($733 million)

Inactive super accounts under $6000 to be transferred to the Tax Office for safekeeping ($582 million)

Slower initial growth in foreign aid while still meeting the 2017-18 target  ($262 million)

The Forecasts in May

2013-14 $18 billion deficit
2014-15 $10.9 billion deficit

2015-16 $0.8 billion surplus
2016-17 $6.6 billion surplus

The Forecasts Now

2013-14 $30.1 billion deficit
2014-15 $24.0 billion deficit
2015-16 $4.7 billion deficit

2016-17 $4.0 billion surplus


Revenue writedown: $33.3 billion

Total savings: $17.3 billion

Total new spending: $8.1 billion

Lower economic growth: 2.5% 2013-14

Peak unemployment: 6.25% June 2014

Economic Statement, four year totals

Now we know. Since May the budget's been bleeding red ink. Revenue will down $8 billion on the budget forecast this financial year, $9.5 billion next financial year, then $7.5 billion and $8.5 billion. Add in unavoidable increases in government spending (due to economic conditions rather than deliberate decisions) and the budget will lost $12 billion this financial year, $11 billion the next, then $9 billion and $9 billion.

Faced with the challenge of filling the hole, Australia's new Treasurer Chris Bowen has decided not to. He doesn't plan to fill it in 2016-17, when he promised a 'rounding error' surplus of $4 billion, just 0.2 per cent of gross domestic product.

He is challenging the Coalition to say would it would do differently.

Would it really cut deeper right now when the economy is weak? (The statement puts economic growth at just 2.5 per cent this year and has unemployment climbing to 6.25 per cent within months.) If so where would it cut? Who would it hurt?

As he puts it: “The government has ensured that the pace of fiscal consolidation carefully balances the importance of a sustainable fiscal position with the risks to jobs and growth that have been seen internationally from too fast a consolidation.”

Cuts to offset what has happened to the budget “would put jobs and growth at risk”.

The government has made the “clear decision to allow the tax write-downs to flow through to the budget balance in 2013-14 and 2014-15”.

Most of the bad news has already been flagged.

Some of the savings are dressed up as good news.

The threshold below which small inactive superannuation accounts are to be transferred to the Tax Office will climb from $2,000 to $4,000 and then to $6,000. More accounts will pass to the government for safekeeping. But this will “protect the real value of more lost superannuation accounts”.

The Tax Office will be given an extra $99 million to crack down on employers not dishing out super. This will raise $827 million, but it help workers not getting payments to which they are entitled

More of Australia's foreign aid budget will be directed to Papua New Guinea as part of the asylum seeker plan, but the aid money will still go overseas. The aid budget will climb more slowly, but it will still climb.

As a piece of economic management the economic statement makes sense. There's no point in crunching the economy when its weakening. But as a budget projection it is threadbare. No-one knows whether the 'rounding error' surplus of $4 billion will ever come to pass in 2016-17.
Unless the economy picks up. The statement is designed not to weaken it.

In The National Times 

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