A single figure demonstrates the extent to which the government has, contrary to the claims of Treasurer Scott Morrison, had a “revenue problem” over the course of its term.
According to the budget papers, in the coming year (2016-17) the government expects to receive $411 billion in total receipts, of which $383 billion will be tax receipts. But when 2016-17 first appeared in the budget papers in the final year of Labor’s term in office in 2013, as a projection, Treasury projected $453 billion, of which $431 billion would be tax receipts.
How that number has changed since 2013 illustrates why the government’s tough-guy fiscal rhetoric has vanished — along with the prospect of returning to surplus any time soon.
First of all, Labor itself wrote down the expected revenue for 2016-17 when Chris Bowen released his Economic Statement just before Kevin Rudd called the 2014 election.
Both nominal GDP and forecast commodity prices were revised downward in that statement, cutting receipts for the year by over $8 billion — but increases in tobacco excise, the fringe benefits tax rorts crackdown (later abandoned by the Coalition) and a financial stability fund all increased revenue, albeit offset by Kevin Rudd’s early move to an emissions trading scheme. The net increase was around $5.4 billion, leaving projected revenue down by around $3 billion.
Treasury and Finance essentially confirmed that position in the 2013 Pre-election Economic and Fiscal Outlook; receipts would be $450 billion in 2016-17, they forecast.
But after that, things deteriorated further. The 2013 Mid-Year Economic and Fiscal Outlook forecast revenue $18 billion less revenue in 2016-17 — $432.8 billion. First of all, Joe Hockey — despite the “budget emergency” — cut his own revenue by billions across the budget period, including $5.4 billion from 2016-17, via removing the carbon price, the mining tax and Labor’s superannuation tax concession reforms.
But “parameter variations” struck the tax take hard; 2016-17 receipts were written down by another $12 billion. GDP growth projections for the year were revised down, company profits were revised down from strong positive to negative growth and small business and property income were also revised down.
Far from being embarrassed by these write-downs, Joe Hockey and Finance Minister Mathias Cormann were proud of them. Apparently they signalled a new era in government accounts, the end of Labor’s reckless indifference to fiscal discipline, a restoration of prudent budgeting. They were, indeed, a “line in the sand”.
“Today’s MYEFO draws a line in the sand after six years of economic and budget mismanagement from Labor,” Hockey said. “At this point I want to draw a line in the sand on the numbers that we have inherited,” he later told a media conference. Cormann agreed:
“It is a matter of record that the previous government invariably overestimated revenue and underestimated expenditure. They kept promising surplus budgets and kept delivering more deficits. Our core commitment with this budget update is to draw a line in the sand, as the Treasurer said, and to provide a believable set of figures. Part of that is to base those estimates on more realistic assumptions than has previously been the case.”
Unfortunately for Hockey, sand, whether lined or unlined, was what his entire treasurership was resting on.
Initially, everything went according to plan. In the 2014 budget, receipts for 2016-17 were revised up by $4 billion. There’d been a tiny downgrade due to parameter variations, but measures like the indexation of fuel excise and the temporary deficit levy added to tax revenue. So far, so good.
Then it all went to hell.
Six months later in the 2014 MYEFO, there was virtually no policy-related changes that affected receipts, but parameter variations cut 2016-17 revenue by another $7.5 billion; now it would be $429 billion.
Treasury actually upgraded its forecasts for the economy and profits for the year, but wages growth was revised down and falling commodity prices belted company profits.
At the 2014 MYEFO media conference, Hockey declared that this set of numbers “draws a line under the sand of the last year of Labor delivering a Budget. They made a $30 billion error between what they promised and what was actually the outcome.”
The sand was running out, though, and fast. In last year’s budget, as 2016-17 moved from a projection into an estimate in the budget papers, the previous downward revision in MYEFO was increased by $1 billion, and there was a new downward revision of more than $6 billion: receipts were now estimated to be $422 billion, mostly because of commodity prices.
Five months later, Scott Morrison took over the Treasury portfolio and immediately declared that there was no revenue problem, merely a spending problem (there was indeed a spending problem — it had blown out under Joe Hockey, to 26.2% of GDP, the highest level since the 1980s). But despite the lack of a revenue problem, revenue continued to deteriorate: down 2016-17 receipts went again in last year’s MYEFO — now to $415 million, another $7 billion hit.
Estimates for receipts from personal income tax, company tax and superannuation taxes all fell. Commodity prices again contributed, but this time there were significant downgrades to economic parameters — nominal growth, wages and profits were all downgraded, hitting revenue.
Thank goodness there wasn’t a revenue problem — or things would have been really crook.
In the 2016-17 budget, you’ll never guess, but Morrison unveiled another $4 billion write-down for what is now the coming budget year, including a $6 billion tax revenue write-down partly offset by revenue from non-tax sources such as charges and dividends.
The bulk of the $42 billion revenue write-down since 2013 has been driven by commodity prices and other parameter adjustments, most of which have been beyond the control of the government. But the Coalition has repeatedly declared itself superior to Labor, which endured exactly the same thing.
Joe Hockey declared “a line in the sand”, which kept getting washed away, that the days of write-downs were at an end under more prudent stewardship. Scott Morrison claims that there is no revenue problem even after writing down revenue twice in his short time as Treasurer. Arrogant words from a government repeatedly mugged by reality.
The government doesn’t have a revenue problem. How can it? It isn’t revenue-constrained. If something is available for sale in the Australian dollar, the government can buy it.
The problem is that the government isn’t spending enough to fill the gap between the economy’s actual output and its potential output. Hence the 1.7 million Australians who are unemployed or under-employed.
Don’t bother Nicholas, you are pissing in the wind trying to explain the nature of fiat currency.
But he’s correct. So are you, come to think on it, explaining our currency scheme to the drongos that fill the remarks column of The Australian is an uphill battle.
Wasn’t being critical. I reckon if people could stop worrying about deficit budgeting we might go some way in calming animal spirits but people seem to want to be spooked about public debt.
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
I have to say I’ve been struggling to come to terms with this concept recently. While it seems pretty much logically airtight, if it really is completely true in practice, then it means a complete rethink of the whole way we approach taxation, and a whole new need of ways to sell the necessity of it to taxpayers. On the plus side, ideas and proposals that previously seemed unaffordable suddenly become interesting again, accepting of course it’s certainly not the case that the government can just spend however much it likes on whatever it likes without potential ill economic effects.
It’s not really “new”, it’s been well understood for over half a century.
http://home.hiwaay.net/~becraft/RUMLTAXES.html
Taxes are for controlling inflation, controlling income and wealth distribution, and influencing desirable/undesirable behaviour.
It’s just the dominant political and economic philosophies are driven by ideology not evidence, prime amongst which is the idea that Government needs to be small enough to drown in a bathtub.
Shrinking from responsibility.
But even the “wealth distribution” argument becomes problematic, once you accept that in principle the government can hand out money to whoever it likes without needing to impose progressive taxation.
The need for progressive taxation seems to more to do with ensuring that the price of scarce resources (especially land) is not excessively driven by those with very high incomes.
And it is fair to say that plenty of economists have made fairly comprehensive criticisms of post-Keynesian theory (or whatever you want to call it) and why it doesn’t hold up in practice.
Your first two statements seem to contradict each other: ‘progressive taxation to control wealth distribution is problematic’ followed by ‘the need for progressive taxation is to control wealth distribution [in land and other resources]’.
The last time something Keynesian was tried was back in post-WW2 America until the neoliberals took over in the 70s. Since then it’s just been handing out money to banks (well, allowing banks to create money) and hoping they do the right thing with it – stupidity writ large. What criticism are you referring to ?
No, I’m saying that if we wanted to even out wealth distribution we don’t necessarily need progressive taxation – just charge a flat tax (sufficient to control inflation and create currency demand) and implement a progressive hand-out system. But even at the highest imaginable flat tax rate, those on super high incomes would end up with more disposal income, and hence able to drive up the price of scarce resources, putting them out of reach of those on the lowest incomes.
http://www.monetary.org/mmtevaluation
I’m far form an expert, but I think you have touched on the problem there yourself – to have a flat tax high enough to catch the upper ends of the income spectrum, it would need to be enormously burdensome on normal people, thus requiring huge amounts of welfare payments, churn, and ultimately disincentive to work.
Also, it’s not _just_ about wealth distribution.
The sovereign money mob seem to mostly take umbrage at the word “debt”, intrinsically conflating it with interest-bearing, time-limited debt from private banks rather than simply just the other side of the accounting ledger.
MMT is simply a description of how the system actually works, it doesn’t make an prescriptions on what should happen. That said, proponents of MMT tend to have a bit of a blind spot when it comes to private money (ie: created by banks) vs public money (created by Government spending), insisting they must be considered they same when really only the Government should be able to create public money at will. If the banks want to create their own money (and charge interest on it), they need to back it with their own assets.
It’s a bit hard to escape the impression that the Liberal party drank their own Kool-Aid about being the better economic managers and just thought that merely the presence of a Liberal government would automatically improve the economy.
BINGO
JohnC – beat me to it but how can it NOT have stood out like the proverbial dog’s…? We must assume that Crikey has done away with the old fashioned idea of sub editors, grammar, parsing and such folderole.
I assume that precision in expression is just soooo 20thC.
So true Saugoof. In fact it was a statement of policy prior to the election of the LNP that all would be right with the world because they would be back in government.
Far and away the greatest benefit from having the LNP as the elected government is that we are eventually spared from being lectured about the ‘profligacy of the ALP’. It also provides more examples to the unthinking public that the LNP are not better economic managers, if they cared to look at it.
And it also spares us the wringing of hands and gnashing of teeth from the right wing nut job media, who are strangely quiet about a government that got in on the basis of a budget emergency, and have actually worsened the situation since.
Typo alert “when Chris Bowen released his Economic Statement just before Kevin Rudd called the 2014 election.”
“….it had blown out under Joe Hockey, to 26.2% of GDP….”
I loathe the LNP, but F me, why do commentators continue to write this nonsense. If my income is $1000/mo and I spend $300/mo on rent, my housing cost is 30% of my “budget”. If I lose my job, and get the dole of say $200/mo, has my housing cost “blown out” to 150% ? It’s bullshit – nothing has “blown out” – my housing cost is unchanged, and I haven’t suddenly become profligate in my housing spending.
That’s not a good comparison, I have a suspicion you’ve got GDP and revenue mixed up. Our GDP hasn’t contracted and expenditure in relation to GDP is an absolutely appropriate measurement. This a blow-out because expenditure has increased in percentage of GDP terms (which is a useful indicator) as well as absolute terms (which is not a good indicator, although the Liberals love to use this when Labor is in power).
Expenditure as a % GDP can increase in one of 4 ways:
a) GDP fixed, expenditure increases
b) GDP falls, expenditure fixed
or generalised,
c) GDP increases at lesser rate than increase in expenditure
d) GDP falls at a greater rate fall in expenditure
My example was (b) where GDP is “income” and expenditure is “rent”. I suspect in the Australian economy, it’s case (c) where GDP is not increasing as fast as expenditure. Given that most government expenditure is somewhat locked in over the forward estimates, GDP not keeping up hardly constitutes a “blow out” in spending.
That may be true in a technical sense but is highly misleading. There has been a blowout in spending because we are actually spending far more not just in GDP percentage terms but also absolute terms while the GDP is relatively static, has been so for a while and there was never a realistic expectation that it would wildly increase. That, to me, constitutes an absolute justification of the term “blow out”.
It’s still unnecessarily emotive language, and implies some sort of lack of control. Norway (to pick a random example) has held government spending at over 45% of GDP for decades, with no obvious ill side-effects, so it’s not like 26.2% is an indication of some possible problem, and given inflation is so low the fact that the government is spending more than it’s taxing is obviously not a problem either.
The problem is that both sides of government have become locked in this ridiculous idea that somehow less government spending and more revenue are necessary to achieve what is a fairly meaningless and perhaps in impossible goal (when was the last time the sovereign government of any major economy ran a budget surplus for a significant period? Germany seems to be about the only occasional anomaly here)