The federal Liberals have long been the big spenders and big taxers of Australian politics. The Abbott government proved the worst of all — inheriting a tax:GDP ratio from Labor of just over 21%, Abbott increased tax to 21.8%; inheriting a payments:GDP ratio of less than 24%, he pumped that up to over 26% before his own party dumped him. Malcolm Turnbull and Scott Morrison lived up to the big-taxing traditions, with tax this year set to surge to over 23% of GDP. They have, however, managed to get payments back down to 24.6% at the end of 2017-18. That’s still higher than Labor, but much better than Tony Abbott.
That effort, however, seems about to be tossed aside as a government desperate to make up ground lost in its leadership mayhem seeks to buy votes.
One of the Liberals’ key budget repair rules is “the overall impact of shifts in receipts and payments due to changes in the economy will be banked as an improvement to the budget bottom line, if this impact is positive”. They stuck to that in 2017-18 — receipts totalled over $13 billion more than forecast in the 2017 budget, but the budget deficit came in at $10 billion, $19 billion less than forecast, because overall spending fell as well. So the extra revenue, and more, was banked.
But what will happen this (election) year? The government is forecasting another revenue bonanza: just last December, it expected to get $463 million in receipts. By the budget in May, that was revised to over $473 billion. But it also changed its spending forecasts to increase spending by over $3 billion between December and May. So the commitment to bank shifts in receipts won’t be maintained — some of it is needed to fund planned new spending.
Whether that turns out to be the case won’t be clear until this time next year. Spending could come in lower than expected, as it did this year, primarily because of lower-than-expected NDIS spending.
What we do know is that the week before last, Treasurer Josh Frydenberg abandoned another key rule: that “new spending measures will be more than offset by reductions in spending elsewhere within the budget”. He responded repeatedly to questions about where the government was getting the extra billions it was throwing at the Catholic Church by saying it would be funded by “growing our economy” and “we’re not making cuts.” On Sunday, Morrison confirmed that Frydenberg hadn’t been speaking out of turn, stating about the rules: “as with those rules in the past, where there are exceptions to those rules, the government reserves the right to exercise that discretion.”
That is, we’ll observe the rules until we decide not to. There’s an election in the offing, after all.
If a Labor government had walked away from its own fiscal discipline rules, it would have copped a belting from commentators. When Wayne Swan had to abandon the return to surplus in December 2012 in the face of constant revenue writedowns, he was never allowed to forget it, though even the Business Council endorsed the decision and said trying to achieve a surplus that year was the wrong idea.
This time around, only the Financial Review has complained about the government’s abandonment of its rules — though with the compulsory slap at Labor as well. The usual suspects are quiet. It seems that no matter what the Liberals do fiscally, they’ll always be given the benefit of the doubt.
“just last December, it expected to get $463 million in receipts. By the budget in May, that was revised to over $473 billion”
Wow! That’s quite a revision!
A continuation of Howard-Costello policies : all that money to buy votes can’t buy truth.
” It seems that no matter what the Liberals do fiscally, they’ll always be given the benefit of the doubt.”
Why not dig a little deeper and try to look for explanations? After all, what is so horrible about govt. fiscal deficits, for any govt. that issues its own free-floating fiat currency and borrows to fund deficits only in that currency? No one can tell us. The “accepted wisdom” is that this will leave a huge debt to be paid by future generations, and further that the bond traders will demand more and more return for buying these bonds (the debt)., thus causing interest rates to skyrocket.
This has been shown time and again to be balderdash. Looking at our own economy, the debt has more than doubled and interest rates are at historic lows. Japan has been increasing govt. debt for two decades amidst regular warnings of dire consequences of high interest rates, collapse of the currency etc. Nothing of the kind has happened. I will not go into details any further.
So, in real terms, big spending by govt., whether by deficits or otherwise is not the problem. Neither does it have anything to do with revenue receipts. Sorry. The govt. is an issuer of currency and NOT a user like a household. The only check on govt. spending is whether it is causing inflation. Unfortunately, this distinction is too hard for many people to make and those who have made this distinction find it very useful not to let everyone know. THAT is why it is so useful to beat Labor on the head for big-taxing and big spending and “debt and deficit disaster”, while not worrying about any of these things if the coalition govt. is doing it.
Sadly, Mr. Chris Bowen doesn’t seem to understand this. It is OK to berate this govt. for violating its own alleged fiscal rules. But claiming that Labor will do better while following those very same rules is just stupid, because the rules are stupid. It is the same sort of mistake that Wayne Swan made when he promised a “budget surplus”, thus justifying the coalition howls of “debt and deficit disaster”, when no such disaster was in existence. If there was, this govt. would have sunk into fiscal oblivion.
Sadly these people do not even know elementary financial arithmetic. If the govt. is going to have a surplus, someone outside the govt. must have a corresponding deficit and who is it to be? Can anyone tell me?
I also agree mostly with modern monetary theory as you are mentioning and I don’t think government spending is such a big issue. What the issue really is, is what is it spending it on and that the Libs generally just abuse the deficit argument to cut social programs and other programs that benefit the people.
Totes true totaram.
It’s a funny concept to realise that a fiat currency issuing government is NOT like a household budget. Once that is understood all the malarkey about deficits and surpluses is just that, malarkey.
Since it’s only a rule until it isn’t, could we at least have the largess devoted to some infrastructure, little things like schools, hospitals or, heaven forfend, an inland rail?
No urban spaghetti roads or evaporation pans aka dams.