Looking back at the budget

An old co-worker once told me that he never reads the newspapers as he doesn’t want to read something written with less than a days consideration. Wise man. So this is the “one week consideration” version of my views on the 2011/12 federal budget.

Budget balance

The first strange thing about this budget is that everybody is talking about the 2010/11 budget balance (-$49.4 billion) or the 2012/13 budget balance (+$3.5 billion). This is understandable for political reasons. The Coalition want to point to the big deficit and Labor wants to point to a surplus. But the 2010/11 is old news, and the 2012/13 is an unreliable forecast. The actual cash bottom line for 2011/12 (the budget year) is -$22.6 billion. Given the current state of the economy, we should have a small surplus now and not a deficit, so the government has to lose a few marks on fiscal policy.

Total government spending for 2011/12 is predicted to be $365.8 billion, of which the biggest element is welfare ($121.9 billion) followed by health ($59.9 billion), education ($29.9 billion), and defence ($21.3 billion). Total cash spending is 4.3% higher than the previous year in nominal terms.

The savings that weren’t

Two annoying budget tricks is to add up multiple years and report a four (or five) year total, and to refer to taxes as “savings”. I don’t mind that politicians and bureaucrats play these tricks… lying is effectively part of their job description. But the sad thing is that the journalists just mindlessly report it. Either the journalists want to pass on the same lies as the government, or they are just incompetent.

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Budget countdown

To get you in the mood for the budget the government has kindly offered us a sickening “behind the scenes” look at Wayne Swan’s preparations, complete with mothers day flowers and a heart-warming pink-bats story. Enjoy:

Detailed comments can wait until after the budget has been released, though I want to pre-emptively make an important distinction. Tax increases are NOT the same as spending cuts. And tax cuts are NOT a type of government spending. Many commentators fail to make this distinction.

As a so-called “neo-liberal”, I want them to keep the promised income tax cuts and also introduce some spending cuts, with one obvious option to reduce middle-class welfare.

Tax’n’spend

Well, it’s no surprise that the government is a little low on money.  Most media reports keep propagating the Rudd spin that this is all caused by the global economic crisis and “decreased revenues” – but they seem to ignore the $100b+ additional spending.  And spending is yet to increase further, with heavy borrowing and taxing to pay for it all.  The latest round:

THE nation’s big earners, on $150,000 a year or more, will be hit to pay for pension reform.

Yes, we’re back to class warfare…  Sure, we’re increasing taxes – but only on rich people, and it’s to pay for pensioners – so that’s ok.  Hopefully, we won’t go as far as the UK – who are increasing their top rate from 40% to 50% – but we have in common with the UK the absolute refusal of government to cut spending:

“Either you completely slash and burn everything government does and throw tens of thousands of extra people on to the unemployment queues and cut funding for hospitals and schools, or you engage in temporary borrowing,” he [Rudd] said.

Of course, he doesn’t necessarily need to cut funding to hospitals and schools (which are rightfully state responsibilities anyway), as there are many other areas with lots of fat.  Indeed, throwing tens of thousands of public servants on to the unemployment queues would be a net gain – though since most of these vote Labor, I doubt that will ever happen.

We’ll wait and see.  I’d like to think that they’re just trying to soften us up for a budget that won’t be all that bad, but I’m sure that’s just wishful thinking.

New Math

By now you’ve all seen the new spending that’s on the agenda.  As with the US stimulus package, there’s a lot of pork for special interest groups.  Two points from the article, taken together, are somewhat amusing:

“TREASURER Wayne Swan has unveiled a $42 billion Nation Building and Jobs Plan…”

“But the package cannot prevent a more than $40 billion turnaround in the budget…”

Gee, I wonder how they figured that out?!

At a price-tag of $42b, they could have eliminated payroll tax in every state for a couple years… but I’m sure they spent the money wisely.  Amongst other things, the “package” includes:

  • $4.7b for schools (mostly buildings)
  • $6.6b for housing
  • $3.9b for “green incentives”
  • $12.7b in direct payments
  • $2.7b in tax cuts (that’s it?!)

Do they expect this to help?

“It estimates the plan will support up to 90,000 jobs over the next two years.”

$42b/90,000 = $466,667 per job.  Wow!

Of course, they claim that two thirds of the money was on “long-term investments to generate future growth,” so it’s really only $155,556 per job.  That’s better.

Thoughts on the budget

I’m on the opposite side of the world at the moment (Jerusalem — great city) and mostly out of touch with the political & economic debates of Australia. But the budget still gets me curious, so today I had a quick flick through the budget papers. A few things worth commenting on…

Big government? The Liberals are claiming that this is a big-government budget. The ALP are claiming that it’s better than what the Liberals did. Both are right. At first I thought this budget had actually cut tax & spending, albeit modestly. However, on closer inspection it seems that the ALP has actually increased tax and spending a bit.

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