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Abbott’s first budget: uninspiring and a far cry from the rhetoric of crisis Abbott’s first budget: uninspiring and a far cry from the rhetoric of crisis
(4 months later)
The macroeconomic end The macroeconomic end point of the Abbott government’s first budget is remarkably uninspiring, particularly given its own judgment that Australia is facing debt and deficit "crisis".
point of the Abbott government’s first budget is remarkably uninspiring, In terms of repairing Australia’s finances, the budget is a small beer effort, especially for a first budget of a new government after a thumping election win eight months ago.
particularly given its own judgment that Australia is facing debt and deficit "crisis". Compared with the estimates in the Mid Year Economic and Fiscal Outlook in December 2013, the cumulative reduction in the budget deficit is a paltry 1.1% of GDP over the three years to 2016-17. This means that the budget is forecast to remain in deficit in 2017-18.
In terms of The government could have chosen to return to surplus before then had it hiked taxes a little more or held back on its rather generous spending commitments to select parts of the economy.
repairing Australia’s finances, the budget is a small beer effort, especially Quite remarkably, the budget also fails to arrest the rise in net government debt, which is forecast to be higher as a share of GDP in 2017-18 than it is today.
for a first budget of a new government after a thumping election win eight The budget shows that Abbott leads a high spending government. The level of government spending will average 24.9% of GDP over the four years to 2017-18. This is an insignificant 0.1% of GDP lower than the average spending of 25.0% of GDP under the previous Labor government in the period from 2008-09 to 2012-13, a time which obviously included the massive fiscal stimulus measures undertaken as the global financial crisis loomed. In the last three years of Labor, government spending averaged 24.6% of GDP. In the last year of the forward estimates, government spending will still be 24.8% of GDP.
months ago. For the record, each 1% of GDP is approximately $16.25bn in 2014-15 dollars.
Compared with the estimates The Abbott government is planning to spend more than the average of the last three years of the Labor government in every year of the forward estimates. Mr Abbott’s fiscal effort is a far cry from the average spending to GDP ratio of 24.1% under the Howard government.
in the Mid Year Economic and Fiscal Outlook in December 2013, the cumulative There is also a massive contrast in the current outlook for government spending compared with the Howard government’s first budget in 1996. In the first four years of the Howard government, government spending fell by 2.4% of GDP to 23.3%. The Hawke government ‘banana republic’ spending cuts were staggering with government spending falling 4.4% of GDP in the four years to 1989-90, when spending dipped to 22.9% of GDP.
reduction in the budget deficit is a paltry 1.1% of GDP over the three These were genuine spending cuts.
years to 2016-17. This means that the budget is forecast to remain in deficit The "tough" decisions in the Abbott government budget are obvious and will have a high impact on those impacted, but they do little more than fund a raft of its pet spending projects. The paid parental leave scheme, defence, the Medical Research Future Fund, roads, airports and infrastructure are big ticket items that receive the bulk of the money saved from elsewhere in the budget.
in 2017-18. This shows that the rhetoric of the budget crisis and need for fiscal repair was and still is without foundation. A truly tough budget would have made the tax hikes greater and the spending cuts would have been made without spending offsets elsewhere. The spending cuts would have been broader.
The government Now to the tax and revenue side.
could have chosen to return to surplus before then had it hiked taxes a little The budget does confirm that tax and other government revenue will be the driver of smaller deficits.
more or held back on its rather generous spending commitments to select parts The budget shows that the tax to GDP ratio will rise from 21.4% in 2012-13 to 23.2% in 2017-18. This is a tax take that no Labor government has ever bettered in the 45 years back to 1970-71.
of the economy. The end point is that this is a budget where the government has squibbed on the decisions needed to return to surplus in a timely fashion.
Quite remarkably, There have been some tough and inevitably unpopular policy decisions, but they should have yielded a more favourable return to the budget bottom line. Alas, the government has seen fit to use the money saved from these tough policy decisions to pump into other parts of the economy and it has relied on a higher tax take to make a few baby steps along the way to an eventual surplus.
the budget also fails to arrest the rise in net government debt, which is In terms of fiscal consolidation, the first Abbott budget is a very small down payment.
forecast to be higher as a share of GDP in 2017-18 than it is today.
The budget shows
that Abbott leads a high spending government. The level of government
spending will average 24.9% of GDP over the four years to 2017-18. This
is an insignificant 0.1% of GDP lower than the average spending of 25.0% of GDP under the previous Labor government in the period from 2008-09
to 2012-13, a time which obviously included the massive fiscal stimulus
measures undertaken as the global financial crisis loomed. In the last three
years of Labor, government spending averaged 24.6% of GDP. In the last
year of the forward estimates, government spending will still be 24.8%
of GDP.
For the record,
each 1% of GDP is approximately $16.25bn in 2014-15 dollars.
The Abbott government
is planning to spend more than the average of the last three years of the Labor
government in every year of the forward estimates. Mr Abbott’s fiscal effort is
a far cry from the average spending to GDP ratio of 24.1% under the
Howard government.
There is also a
massive contrast in the current outlook for government spending compared with
the Howard government’s first budget in 1996. In the first four years of the
Howard government, government spending fell by 2.4% of GDP to 23.3%. The Hawke government ‘banana republic’ spending cuts were staggering with
government spending falling 4.4% of GDP in the four years to 1989-90,
when spending dipped to 22.9% of GDP.
These were genuine
spending cuts.
The "tough"
decisions in the Abbott government budget are obvious and will have a high
impact on those impacted, but they do little more than fund a raft of its pet
spending projects. The paid parental
leave scheme, defence, the Medical Research Future Fund, roads, airports and
infrastructure are big ticket items that receive the bulk of the money saved
from elsewhere in the budget.
This shows that
the rhetoric of the budget crisis and need for fiscal repair was and still is without
foundation. A truly tough budget would have made the tax hikes greater and the
spending cuts would have been made without spending offsets elsewhere. The spending
cuts would have been broader.
Now to the tax and
revenue side.
The budget does
confirm that tax and other government revenue will be the driver of smaller
deficits.
The budget shows
that the tax to GDP ratio will rise from 21.4% in 2012-13 to 23.2% in 2017-18. This is a tax take that no Labor government has ever bettered
in the 45 years back to 1970-71.
The end point is
that this is a budget where the government has squibbed on the decisions needed
to return to surplus in a timely fashion.
There have been
some tough and inevitably unpopular policy decisions, but they should have
yielded a more favourable return to the budget bottom line. Alas, the
government has seen fit to use the money saved from these tough policy
decisions to pump into other parts of the economy and it has relied on a higher
tax take to make a few baby steps along the way to an eventual surplus.
In terms of fiscal
consolidation, the first Abbott budget is a very small down payment.