A massive slump in government revenue?

A huge hole has opened up in the federal governments revenue stream. Revenue next financial year will be reduced to just $290 billion. The government hasn’t had to operate on such a lean amount of revenue for many years. Three in fact. Yes despite the rhetoric federal government revenue in 2009-10 will still be higher than it was in 2006-07. And 2006-07 was at the time a record high for revenue. It’s all in table C1.

Table C1: Australian Government (accrual) revenue
Table C1

 Table C1: Australian Government (accrual) revenue (continued)
Table C1 continued

9 thoughts on “A massive slump in government revenue?

  1. Fme..
    total revenue will at grow at 5% per year over that 13 yer period.

    It grew at 3.7% per year from 2000/01 to 2008/09. And they still can’t keep it in balance.

    Honestly, how can this keep going without a teaparty is beyond me.

  2. I am less unimpressed about this than I expected. However, monetary, not fiscal policy is my worry…

    At least they’ve proposed a cap on growth of spending.

    This is actually very good news. The real level of taxation is equal to the level of spending.

    The growth estimates are valid in that after a recession, there is excess capacity. China is starting to pick up again and commodities are gaining.

    However, paying off debt will crowd out private investment, both debt and equity.

    Quite frankly, I’m more worried about monetary policy. We have negative nominal, real and per capita growth and we have 4.4% inflation. Given the low growth and deleveraging due to the credit crunch, commentators who favour more regulation of the economy warned we risked deflation. I dispute that is necessarily bad (all price distortions have costs) but the fears were totally ungrounded.

    I fear this will lead to capital misallocation. [Briefly I will explain the Austrian business cycle theory]. This means investment will be skewed towards consumer goods against capital goods {also buoyed by increased capital gains in fixed assets relative to cash and bank deposits}. There will be less capital goods and so the real interest rates will rise. Furthermore, many marginal consumer goods will be invested in – with artificial and unsustainable rates of return. The result is many of these projects fail, leading to a bust up of investments, firms, jobs, labour demand, wages etc, but actually raising prices since resources have been bidded up but there is less production and less variety of goods produced.

    The above scenario is illustrated by the US housing market from 2004-2007 where in 2004 real interest rates dropped to -2%. Also see Frenkel, M., and Mehrez, G. (2000) “Inflation and the Misallocation of Resources” Economic Inquiry, Vol 38, No 4, October, pp. 616-628., for more on how inflation skews employment across sectors from construction to financial services.

  3. So much for the revenue slump… The media certainly seem to be giving them an easy run on that claim, don’t they?

  4. Reading a lot of reader’s comments at the news sites, there’s quite a large number of people who swallow the line that the GFC has caused a revenue collapse, despite the figures demonstrating that this is untrue…

    I said before that Rudd was a classic underachiever. That might sound like an odd accusation to make about a prime minister, but his actions fit the psychological profile: underachievers typically talk up the challenges, so that if they succeed, people will presumably think how great they are, but if they fail, well… then it wasn’t their fault, as nobody could have been expected to succeed.

    The amazing thing is that the strategy seems to be working for him. But then, how else would an underachiever rise to the ranks of PM?

  5. That depends what you want to achieve. While he didn’t marry a rich woman, she became rich, so he could probably work for her when he quits politics.
    That’s what I call nice work- where can I get some?

  6. Fleeced — the GFC has caused a significant revenue collapse compared with previous estimates of the 2009/10 revenue. I don’t think Terje was trying to question this (and if he was, he is wrong).

    I think he was trying to put the numbers in context and draw attention to the ongoing growth in government revenue and spending.

    (P.S. Terje — I tried to adjust the size of the graphs to make them fit, but I may have shrunk them too much. Mea culpa.)

  7. The revenues may have been significantly less than forecast, but even so, it’s still on an increasing trend – with next year only $13b lower than previous record high. To claim that a “revenue slump” is the cause of the deficit is therefore incorrect.

  8. I don’t refute that revenue is much lower than forcast. And I don’t really mean to suggest that the ALP government is principly responsible for the rhetoric in calling this a massive revenue slump when in practice it is just a decline to the level of three years ago. However it does seem to me that there is some false assumptions inherient in how the economics community frame such discussions. We seem to implicitly accept that spending and revenue should grow endlessly and any deviation from this is abnormal. We ought to assume that revenue and spending are fixed (perhaps with an allowance for population and inflation) and that it is the job of governments to operate within these means. In other words a budget ought to be about budgeting. And if spending or revenue are increased then this should be topical. And perhaps without some form of popular consent it should even be illegal.

    (I’ve reverted the charts to their previous size. Sorry to anybody that has a small screen. Now you know what most articles are like for those that use a PDA.)

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