Budget & Economic Plan (Sic)

How to interpret the Budget? My initial reaction was “much ado about nothing”, by which I meant that while there have been reductions in superannuation “concessions” and in tax rates for small businesses offset by increases in tobacco excise, together with a small initiative on youth employment and commitments to fund various types of infrastructure, there was little change over the next two years in estimates of total government spending and revenue relative to the total economy. This is reflected in the following table.

Receipts Payments Deficit
$bn %GDP $bn %GDP $bn %GDP
2015-16 388.0 23.5 425.0 25.8 39.9 -2.4
2016-17 411.3 23.9 445.0 25.8 37.1 -2.2
2017-18 437.4 24.2 459.9 25.5 26.1 -1.4

In fact, the increase over the next two years in total revenue from 23.5 to 24.2% of GDP confirms that, contrary to many statements by Scott Morrison before the budget, the total burden of taxation is actually set to rise –not a normal component of an economic plan. It also seemed that, even allowing for the separately announced plan to increase defence expenditure to 2% of GDP by 2021, these were minor changes which scarcely constituted an economic plan for jobs and growth promised by Turnbull and his Treasurer Scott Morrison.

True, the official forecast is for real GDP to increase in 2017-18 to 3% from 2.5% in the current and next year. This is attributed to support from household spending, investment and exports. But a lot can happen  before 2017-18 and the growth in employment is forecast to slow from 2% this year to 1.75% in 2017-18 (and 2016-17). The continued downward adjustments of forecast growth overseas also suggest that the risk is for a downward adjustment here rather than a recovery (sic) to 3%. In short, quite apart from the omissions from the “plan” (such as a much wider reform of workplace relations), it is a big stretch to interpret the official budget forecasts as characterising an economic plan for “jobs and growth”.

One attempt by Turnbull to get around this “problem” is to focus on the promise to  reduce the company tax on small businesses over the next ten years, with the reduction to 25% eventually being applied to all companies. But while such reductions would in themselves help to increase growth, it is absurd to be claiming that future reductions in company taxes are now a part of a 10 year growth plan. We have no idea what the economy/budget will look like 10 years hence and it might be that any tax cuts for companies then would have to be offset by increases in other taxes. In reality, we have only a limited idea of what the budget will look like in the last two years of the forward estimates (2018-19 and 2019-20), which is why the budget papers describe the figures in them as “projections” not “estimates”. (Incidentally, the same applies to Shorten who is resorting to claims about what Labor will do over the next ten years).

More generally, although my initial thought about the budget/economic plan was “much ado about nothing”, the reality is that they should have done a lot to at least starting to get the budget on track to reduce the size of government. As Andrew Bolt claims in “No matter whether Malcolm Turnbull or Bill Shorten wins the election, the Left has it sewn up”, even if Turnbull wins, “neither party will resemble what they are promising now. Both will almost certainly be worse – and more Left wing”. Turnbull’s appointment of a former Green’s candidate as a Deputy Secretary in the Department of PM &C, now headed by former Environment head Parkinson, points the way to Australia having a Socialist/Green PM if Turnbull wins the election. Come what may, unless Turnbull is replaced we are going down the European path.

Terry McCrann also has some important comments along similar lines in “Long and Bill Shorten of it: be afraid, very afraid”. He describes Turnbull as “quite frankly and simply a dud” and implies that as he is “going to be on display for eight long, cringing awful weeks” the campaign may well favour Shorten. Not that he gives him a boost: rather the opposite in pointing out that Labor’s proposal to have renewable energy usage at 50% by 2030 is “completely impossible”. But given Turnbull’s view on global warming, he is unlikely to make this a major issue.

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