Trajectory to surplus not the same thing as budgeting for a surplus

As I mentioned to Pat Hession on Townsville ABC radio yesterday afternoon, the 2015-16 Federal Budget simply kicks the can down the road, as they say, leaving it for a future Government (or this one if it stays in power) to make the hard decisions necessary to truly repair the budget (see my post from yesterday). A trajectory back to surplus is not the same thing as budgeting for a surplus, and there is no surplus over the forward estimates, just a steady fall in the deficit – a fall which may not occur as projected, as new budget pressures emerge in coming years and the Government commits to new expenditures or renews old programs.

The budget estimates for 2017-18 and 2018-19 are not really forecasts, but what Treasury calls projections, in which critical variables such as nominal GDP grow at rates around long-run averages. The projections are not as reliable as forecasts, and, given how much budget forecasts for the same year can change within six months, the projections of the deficit declining to 0.4% of GDP by 2018-19 should be treated with some skepticism.

Regarding the impact of the Budget on Queensland, the Brisbane Times has good coverage, with the news of an increasing share of GST revenue welcome. The article also notes the establishment of the $5 billion Northern Australia Infrastructure Facility, which will provide concessional loans to nation building projects, but which seems to me to be a case of putting the cart before the horse. Is the Government sure that $5 billion of viable projects worthy of public subsidies are out there for Northern Australia right now? I’m doubtful there will be many projects with good business cases, and which would be likely to obtain the necessary environmental approvals, that the Facility could fund. The establishment of the Facility suggests the Government would expect to lend $5 billion, but to do so it might end up funding some dubious projects that turn out to be white elephants.

Finally, the best comment on the Budget I’ve seen this morning has come from BDO Tax Partner Mark Molesworth, who notes in an email introducing BDO’s Federal Budget update that:

The Abbott Government’s second Federal Budget was as predictable as the daily commute with many key measures released ahead of time.

While there is some relief for small business, the tokenistic concessions may in fact add to the tax compliance costs. Within the Budget there is very little for medium and large businesses, except for additional multinational anti-tax avoidance measures.

So, while it wasn’t a derailment in terms of tax reform and simplification, the ‘Reform’ train is stuck at the station while we wait for the delivery of the Tax White Paper.

Very true. The reform train is definitely stuck at the station. Unfortunately I doubt it will ever go anywhere. The Government no longer seems prepared to make the tough decisions that are truly necessary to repair the budget.

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7 Responses to Trajectory to surplus not the same thing as budgeting for a surplus

  1. KT says:

    The budget seems ambitious on the revenue side too. with the polls indicating the next election will be close then the government has lost its nerve

  2. Jim says:

    How did they come up with the growth forecasts that underpin everything? The trajectory to a surplus seems to be built on a lot of wishful thinking as far as I can see.

    • Gene Tunny says:

      In 2017-18 and beyond they just assume growth returns to its long-run average, which may be reasonable, except if we get that overdue recession. Thanks for the comment, Jim.

  3. Given that tax revenues rely upon nominal growth (rather than real growth) it concerns me greatly that the budget has nominal GDP leaping from +1.5% in ’14-15 to +3.25% in ’15-16 and then +5.5% in ’16-17. The rationale behind those projections would appear to be not only a return to near-trend real GDP growth by ’16-17 but a dramatic turn around in the GDP deflator which is forecast at -1% this year but +2.25% by ’16-17.
    With this forecasted/projected run of more growth years the Aus economy would enter an unprecedented run of 26 years without a recession. Let’s all hope that comes to pass ‘cos if it doesn’t this budget will be exposed as a smoke and mirrors exercise with no real attempt at fiscal repair having been made.

  4. White Elephant says:

    Spot on Gene

    Spending at GFC highs and apparently there is 3% growth on the horizon – when does the belt ever get tightened?

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